SCIENTIFIC LEARNING CORP, S-1, 1998-06-10

SCIENTIFIC LEARNING CORP
S-1, 1998-06-10

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<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 10, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

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SCIENTIFIC LEARNING CORPORATION

(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 8200 94-3234458
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>

1995 UNIVERSITY AVENUE, SUITE 400
BERKELEY, CA 94704
(510) 665-9700

(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)

SHERYLE J. BOLTON
CHIEF EXECUTIVE OFFICER
SCIENTIFIC LEARNING CORPORATION
1995 UNIVERSITY AVENUE SUITE 400
BERKELEY, CA 94704
(510) 665-9700

(Name, address, including zip code, and telephone number, including area code,
of agent for service)

------------------------------

COPIES TO:

JEFFREY S. ZIMMAN NORA L. GIBSON
JULIA L. DAVIDSON RANDALL M. LAKE
JODIE M. BOURDET BARBARA SKAGGS GALLAGHER
ISOBEL A. JONES BROBECK, PHLEGER & HARRISON LLP
COOLEY GODWARD LLP SPEAR STREET TOWER
ONE MARITIME PLAZA, 20TH FLOOR ONE MARKET
SAN FRANCISCO, CA 94111 SAN FRANCISCO, CA 94105
(415) 693-2000 (415) 442-0900

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.

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If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
number for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /

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CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE (1) REGISTRATION FEE
<S> <C> <C>
Common Stock, $0.001 par value per share.......................................... $34,500,000 $10,178
</TABLE>

(1) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457(o) under the Securities Act of
1933. Such amount includes $4,500,000 of Common Stock which the Underwriters
have an election to purchase solely to cover over-allotments, if any. In
accordance with Rule 457(o) under the Securities Act of 1933, the number of
shares being registered and the proposed maximum offering price per share
have not been included in this table.

------------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE

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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 10, 1998

[LOGO]

COMMON STOCK

ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING OFFERED BY
SCIENTIFIC LEARNING CORPORATION (THE "COMPANY"). PRIOR TO THIS OFFERING (THIS
"OFFERING"), THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON STOCK OF THE
COMPANY. IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE WILL
BE BETWEEN $ AND $ PER SHARE. SEE "UNDERWRITING" FOR A DISCUSSION OF
THE FACTORS TO BE CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING PRICE.
THE COMPANY HAS APPLIED TO HAVE THE COMMON STOCK APPROVED FOR QUOTATION ON THE
NASDAQ NATIONAL MARKET UNDER THE SYMBOL "SCIL."

SEE "RISK FACTORS" COMMENCING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.

--------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
<S> <C> <C> <C>
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PER SHARE..................................... $ $ $
TOTAL (3)..................................... $ $ $
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</TABLE>

(1) SEE "UNDERWRITING" FOR INFORMATION CONCERNING INDEMNIFICATION OF THE
UNDERWRITERS AND OTHER MATTERS.

(2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY, ESTIMATED AT $ .

(3) THE COMPANY AND THE SELLING STOCKHOLDERS HAVE GRANTED TO THE UNDERWRITERS A
30-DAY OPTION TO PURCHASE UP TO ADDITIONAL SHARES OF COMMON STOCK
SOLELY TO COVER OVER-ALLOTMENTS, IF ANY. IF THE UNDERWRITERS EXERCISE THIS
OPTION IN FULL, THE TOTAL PRICE TO PUBLIC, UNDERWRITING DISCOUNT, PROCEEDS
TO COMPANY AND PROCEEDS TO SELLING STOCKHOLDERS WILL BE $ , $ ,
$ AND $ , RESPECTIVELY. SEE "UNDERWRITING."

THE SHARES OF COMMON STOCK ARE OFFERED BY THE SEVERAL UNDERWRITERS NAMED
HEREIN, SUBJECT TO RECEIPT AND ACCEPTANCE BY THEM AND SUBJECT TO THEIR RIGHT TO
REJECT ANY ORDER IN WHOLE OR IN PART. IT IS EXPECTED THAT DELIVERY OF THE
CERTIFICATES REPRESENTING SUCH SHARES WILL BE MADE AGAINST PAYMENT THEREFOR AT
THE OFFICE OF NATIONSBANC MONTGOMERY SECURITIES LLC ON OR ABOUT , 1998.

--------------------------

NationsBanc Montgomery Securities LLC
BancAmerica Robertson Stephens
Pacific Growth Equities, Inc.

, 1998
<PAGE>
INSIDE FRONT COVER OF PROSPECTUS: Contains the Fast ForWord Logo; text
below the logo states "Language Takes Us Everywhere-TM-".

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES OFFERED
HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE SHORT
COVERING TRANSACTIONS AND PENALTY BIDS. THESE TRANSACTIONS MAY BE EFFECTED ON
THE NASDAQ NATIONAL MARKET OR OTHERWISE AND, IF COMMENCED, MAY BE DISCONTINUED
AT ANY TIME. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."

INSIDE GATEFOLD (LEFT): Contains side by side graphs subtitled "Before Fast
ForWord" and "After Fast ForWord," respectively, showing test scores of 196
children on certain tests of language development before and after such children
used Fast ForWord, superimposed on bell curves representing the normal
distribution of scores on such tests. The graphs, together, are titled "Results
Of The Tests Of Language Development (TOLD) Before and After Fast ForWord
Training" and are accompanied by the following text footnotes: "(1) Represents
the results from the TOLD-I:2 and -P:2 tests for 196 of the approximately 500
children who participated in the Company's 1996 field trial and who used the
Fast ForWord program for 100 minutes a day, five days a week for four to eight
weeks. The industry-accepted TOLD-I:2 and -P:2 tests are individually
administered language tests that assess various aspects of language performance
including semantics, syntax, morphology, phonology and listening comprehension.
The changes in test results reflected in the above histograms are statistically
significant and highly reliable (t(195)=18.21,p < .0001);" and "(2) The test
results represent an age-corrected distribution of language performance
(measured in Z-socres) where the population average (50th percentile) is zero
(as indicated in the histograms above) and the standard deviation is one. Prior
to the beginning of Fast ForWord training, the tested group achieved an average
score of -1.0 Z-scores (standard deviation of 0.9) which approximates the 16th
percentile of performance for this test within the general population. After
completion of the Fast ForWord program, the tested group achieved an average
score of -0.2 Z-score (standard deviation of 1.0) which approximates the 42nd
percentile of performance for this test within the general population. The
Z-score is a linear transformation that converts a set of score into a set of
standard scores with a mean of zero and a standard deviation of one allowing
direct comparison to the standard normal distribution referred to as the table
of the normal curve."

INSIDE GATEFOLD (RIGHT): Contains a large photograph of children working on
Fast ForWord with a monitor present. This photograph is superimposed on a
picture of a computer mouse that is used while working on Fast ForWord. Text
with the photograph states: "Scientific Learning Corporation is committed to
advancing human learning and performance through proven, neuroscience-based
programs and services, using advanced integrated technologies. Fast ForWord-TM-,
its initial product, is an intensive, computer-based training program that
focuses on improving critical pre-reading skills, including receptive and
expressive communication skills, in children with language-based learning
problems. In Company-sponsored field trials involving more than 1,000 children
with language-based learning problems, participants on average achieved
improvement of more than 1.5 years in language processing and related skills
after completion of the Fast ForWord program in four to eight weeks. Also
contains the Fast ForWord logo in the bottom right corner."
<PAGE>
[LOGO]
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, THE INFORMATION
CONTAINED IN THIS PROSPECTUS: (I) GIVES EFFECT TO A ONE-FOR-TWO REVERSE STOCK
SPLIT OF THE COMMON STOCK AND PREFERRED STOCK TO BE EFFECTED PRIOR TO THIS
OFFERING; (II) GIVES EFFECT TO THE CONVERSION OF ALL OF THE COMPANY'S PREFERRED
STOCK INTO COMMON STOCK ON A ONE-FOR-ONE BASIS PRIOR TO COMPLETION OF THIS
OFFERING; AND (III) ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT
EXERCISED. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM
THOSE DISCUSSED IN THIS PROSPECTUS. FACTORS THAT MAY CAUSE OR CONTRIBUTE TO SUCH
A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS,"
AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS.

THE COMPANY

The Fast ForWord program typically lasts from four to eight weeks and
consists of 100 minutes per day of training for five days per week under the
supervision of a teacher, speech and language professional, parent or other
learning facilitator trained in the use of the program. Fast ForWord measures
the child's responses during each exercise and continually adjusts and adapts
the program to challenge each individual child appropriately with customized
training. In addition, because the results from each child's Fast ForWord
exercises are compiled daily in a central database via the Internet, Fast
ForWord is able to automatically generate up-to-date performance charts and
templates, enabling the learning facilitator to monitor the child's progress on
a daily basis. Delivered through a variety of distribution channels, including
public schools, speech and language professionals in private practice and
Company-operated learning centers ("Learning Centers"), Fast ForWord is designed
to support teachers, speech and language professionals, parents and other
learning facilitators in providing a program that can be integrated with school
curricula and other language programs to assist children in overcoming
language-based learning challenges and provide a foundation for language skills
and academic learning.

Humans are born with the potential to learn any language, and one of a
child's early tasks is to learn to extract meaning from speech by identifying
its basic auditory building blocks, or phonemes. In the first 12 to 16 months of
a child's development, the brain learns to recognize the phonemes that are
relevant to the child's native language. Studies have shown that approximately
20% of children have significant reading difficulties, most of which can be
attributed to difficulty in acquiring, retaining and manipulating phonemes.
According to industry sources, 20% of all children in the United States have
significant language-based learning difficulties. Extrapolating from U.S.
Department of Commerce, Bureau of the Census data, this figure represents
approximately 8,000,000 children between the ages of four and 13. The Company
believes that approximately 800,000 children in the United States enter this
category each year and that their language-based learning problems result in
part from the inability to make reliable distinctions among certain elements of
speech.

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<PAGE>
manner in which the brain processes language. In formal and widely noted
research studies, as published in the peer-reviewed journal SCIENCE in January
1996, the Company's founding scientists from the University of California at San
Francisco ("UCSF") and Rutgers, The State University of New Jersey ("Rutgers")
demonstrated that children with language-based learning problems could
significantly improve their language skills through such exercises. In
Company-sponsored field trials involving approximately 1,000 children with
language-based learning problems, participants on average achieved improvement
of more than 1.5 years in language processing and related skills after
completion of the Fast ForWord program in four to eight weeks. The Company
believes that similar improvements, if achievable at all through traditional
remediation programs, have typically required several years. In addition, Fast
ForWord has successfully produced broad results, with approximately 90% of all
children identified by standardized tests as having language-based learning
problems making significant gains in critical language skills upon completing
Fast ForWord training.

The Company's goal is to establish itself as the leading provider of proven,
neuroscience-based education and training products and services focused
specifically on language-based learning problems and on other neurologically
based challenges faced by children and adults. The Company plans to
substantially increase its penetration into the over 100,000 schools in the
United States with students in kindergarten through high school by expanding its
direct marketing programs, pursuing district level school contracts and
increasing the number of schools acting as reference sites for Fast ForWord. The
Company also intends to increase its marketing directly to speech and language
professionals in private practice and parents. Furthermore, the Company intends
to develop new products based on practical applications of neuroscience
research, including additional language-based products. The Company is currently
field testing a beta version of Fast ForWord II for children who have completed
Fast ForWord and are ready for a program that focuses on more advanced
pre-reading skills. The Company is also developing other language-based
products, including an English-as-a-Second-Language ("ESL") program for foreign
students and for adults, an adult version of Fast ForWord and an assessment or
screening test for language-based learning problems. In addition, the Company is
evaluating foreign language versions of Fast ForWord and a program to assist
stroke victims in reacquiring language skills. By adhering to proven research,
rigorously testing its products and publishing the results and communicating the
efficacy of its products and services, the Company intends to become a trusted
name in education and training.

The Company was incorporated in 1995 in the State of California and
reincorporated in 1997 in the State of Delaware. The Company commenced
operations in February 1996. The Company's principal executive office is located
at 1995 University Avenue, Suite 400, Berkeley, California 94704 and its
telephone number is (510) 665-9700.

RISK FACTORS

The Common Stock offered hereby involves a high degree of risk. See "Risk
Factors."

4
<PAGE>
THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company............................. shares
Common Stock to be outstanding after the Offering............... shares (1)
Use of proceeds................................................. Sales and marketing, research and
product development, repayment of
indebtedness and other general
corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol.......................... SCIL
</TABLE>

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(1) Based on the number of shares outstanding as of March 31, 1998. Excludes:
(i) 1,639,252 shares of Common Stock issuable upon exercise of options and
warrants outstanding as of June 10, 1998 with a weighted average exercise
price of $0.65 per share; (ii) 2,800,000 shares of additional Common Stock
reserved for issuance under the Company's 1998 Equity Incentive Plan; (iii)
100,000 shares of Common Stock reserved for issuance under the Company's
1998 Non-Employee Directors' Stock Option Plan; and (iv) 500,000 shares of
Common Stock reserved for issuance under the Company's 1998 Employee Stock
Purchase Plan. See "Management--Employee Benefit Plans," "Certain
Transactions" and "Description of Capital Stock."

5
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER THREE MONTHS ENDED MARCH
31, 31,
-------------------- -------------------------
1996 1997 1997 1998
--------- --------- --------- --------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues................................................... $ -- $ 2,962 $ 153 $ 647
Gross profit..................................................... -- 2,013 88 486
Operating loss................................................... (2,611) (5,135) (1,034) (1,707)
Net loss......................................................... (2,497) (5,058) (1,005) (1,687)
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, 1998
-------------------------
AS ADJUSTED
ACTUAL (1)
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<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................................................ $ 87
Total assets........................................................................... 3,018
Long-term debt, including current portion.............................................. 282
Redeemable convertible preferred stock................................................. 8,002 --
Stockholders' equity (deficit)......................................................... (6,616)
</TABLE>

- --------------------------

(1) As adjusted to reflect the conversion of outstanding Preferred Stock into
5,098,252 shares of Common Stock upon completion of this Offering, the sale
of shares of Common Stock offered hereby at an assumed initial public
offering price of $ per share after deducting underwriting discounts and
estimated offering expenses and the application of the estimated net
proceeds therefrom. See "Use of Proceeds" and "Capitalization."

6
<PAGE>
RISK FACTORS

THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. IN ADDITION TO THE OTHER
INFORMATION SET FORTH IN THIS PROSPECTUS, THE FOLLOWING RISK FACTORS SHOULD BE
CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND ITS BUSINESS BEFORE
PURCHASING ANY OF THE SHARES OF COMMON STOCK OF THE COMPANY. THIS PROSPECTUS
CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES, INCLUDING, WITHOUT LIMITATION, STATEMENTS OF THE COMPANY'S PLANS,
OBJECTIVES, EXPECTATIONS AND INTENTIONS. THE CAUTIONARY STATEMENTS MADE IN THIS
PROSPECTUS SHOULD BE READ AS BEING APPLICABLE TO ALL FORWARD-LOOKING STATEMENTS
WHEREVER THEY APPEAR IN THIS PROSPECTUS. THE COMPANY'S ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE DISCUSSED IN THIS PROSPECTUS. FACTORS THAT MAY CAUSE OR
CONTRIBUTE TO SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED
BELOW, AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS.

UNCERTAINTY OF MARKET ACCEPTANCE. The Company's future success is, in part,
dependent on acceptance of Fast ForWord by public schools, administrators,
teachers, speech and language professionals, parents and other learning
facilitators. Market acceptance of Fast ForWord may depend on a number of
factors, including, among others: (i) continued demonstration of efficacy and
acceptance of the Company's efficacy results; (ii) willingness of learning
facilitators to adopt new teaching and training methods; (iii) cost of the
Company's programs and of alternative remediation programs; (iv) availability of
government funding; (v) competitive developments; (vi) ability to incorporate
the Fast ForWord program into traditional school programs; (vii) evolving
technology and standards; and (viii) access to and ability to use the Internet
and required computer equipment. The inability of the Company to achieve and
maintain market acceptance, and increase the number of programs sold would
adversely affect the Company's business, financial condition and results of
operations. See "Business--Sales and Marketing."

CHALLENGES TO MARKET PENETRATION. The Company began selling Fast ForWord to
public schools in May 1997 and has not yet derived a significant amount of
revenues from sales to public schools. The Company believes that its ability to
penetrate the public school market will depend, among other things, on its
ability to attract and retain experienced sales personnel, gain access to
educators and other key public school decision-makers and convince them to
implement Fast ForWord, which represents a fundamental shift in the manner of
addressing language-based learning problems. In addition, the Company believes
that schools and teachers may find it difficult to incorporate the intensive
Fast ForWord training program, which is designed to be used for 100 minutes per
day, five days per week, into traditional school programs. The Company believes
that its success in the public schools market will, in part, depend on the
Company developing ways for teachers to more easily incorporate Fast ForWord
into traditional school programs, as to which there can be no assurance.

Fast ForWord represents a substantial change in the way speech and language
professionals operate their private practices. For example, most speech and
language professionals in private practice have not traditionally used computers
or other technology in their practices. The Company believes that to achieve
success in the private practice speech and language professional market, the
Company must, among other things, show speech and language professionals in
private practice that technology, and Fast ForWord in particular, can improve
their practices and that the related expenditure on training is a worthwhile
investment. In addition, the Company must convince speech and language
professionals that its programs are a tool which can be used to supplement their
practice, rather than a competitive threat. Furthermore, the Company believes
that in order to increase the number of programs sold through speech and
language professionals, the Company will need to demonstrate to speech and
language professionals the effectiveness of supervising multiple clients at a
time. There can be no assurance that the Company will be successful in further
penetrating the private practice speech and language professional market.

To date, the Company has had limited experience in selling Fast ForWord
directly to parents. Distribution channels involved in sales to parents may
include Learning Centers, as well as the "at-home" education market. The Company
opened its first three Fast ForWord Learning Centers in 1998 and has had minimal
revenues to date from such centers. The success of the Learning Centers depends,
in part, on

7
<PAGE>
the Company's ability to: (i) identify suitable locations for the Learning
Centers and successfully negotiate lease or purchase agreements that are
beneficial to the Company; (ii) generate sufficient student attendance at each
Learning Center; and (iii) hire and train high-quality employees to staff each
Learning Center. Additionally, the Company believes that its ability to
penetrate the parental market will depend, in part, on its ability to develop a
"remote" or "at-home" course that can be delivered by video, CD-ROM and/or the
Internet for the training of parents in the supervision and administration of
Fast ForWord. There can be no assurance that the Company will successfully
develop distance-based training programs for parents and other learning
facilitators. In addition, the Company believes that success in selling Fast
ForWord to parents will depend upon word-of-mouth referrals among parents based
on their own experiences, which the Company expects will take considerable time
to develop, and there can be no assurance that such referrals will develop in a
rapid or substantial manner, if at all. See "Business--Sales and Marketing."

RELIANCE ON A SINGLE PRODUCT. Fast ForWord, including the training of
various professionals in the administration and supervision of the program, has
accounted for substantially all of the Company's revenues since inception, and
the Company anticipates that its revenues will continue to be substantially
derived from Fast ForWord and related programs for the foreseeable future.
Historically, the substantial majority of program revenues have been
attributable to sales to speech and language professionals in private practice,
and the Company has only recently begun to sell programs and services to public
schools. Failure to increase sales of the Company's Fast ForWord training
program and to successfully introduce additional programs would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business--Sales and Marketing."

FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; SEASONALITY. The Company's
quarterly operating results have varied significantly in the past and are
expected to fluctuate significantly in the future as a result of a variety of
factors, many of which are beyond the Company's control. Factors that may affect
the Company's quarterly operating results include among others: (i) demand for
technology-based education and training products; (ii) size and timing of
product orders and implementation; (iii) revenue mix between products and
services; (iv) timely development, introduction and market acceptance of the
Company's existing and future products, if any; (v) pricing of the Company's
programs and services; (vi) number and timing of Learning Center openings and
closings; (vii) terms under which Learning Centers are operated; (viii)
competitive conditions; (ix) ability to attract and retain experienced
personnel; (x) availability of government funding for public schools; (xi)
public school calendars and budget cycles; (xii) number and timing of Fast
ForWord training seminars for learning facilitators; and (xiii) general economic
and market conditions. The Company's limited operating history and the emerging
nature of its market make prediction of future revenues and expenses difficult.
The Company's expense levels are based in part on its expectations as to future
revenues and to a large extent are fixed in the short term. There can be no
assurance that the Company will be able to predict its future revenues
accurately and the Company may be unable to adjust spending in a timely manner
to compensate for any unexpected revenue shortfall. Accordingly, any significant
shortfall of revenues in relation to the Company's expectations could cause
significant fluctuations in quarterly operating results, which would have an
adverse effect on the Company's business, financial condition and results of
operations.

Demand for the Company's programs and services is subject to certain
seasonal influences which can vary depending on the distribution channel being
employed. The Company does not have sufficient operating experience in its
various distribution channels to predict the overall effect of various seasonal
factors and their effect on future quarterly operating results. The Company
believes that, because of the intensive nature of Fast ForWord, demand for its
programs from speech and language professionals in private practice may be lower
during the school year than in the summer. The Company's strategy to place Fast
ForWord Learning Centers in private schools and take advantage of unused
capacity during summers may further amplify this effect. Certain of the
Company's Fast ForWord Learning Centers are expected to

8
<PAGE>
operate only during the summer and, to date, the Company has no contracts
extending through the school year for Learning Centers expected to be
established in private schools. To the extent the Company penetrates the public
school market, the Company may experience seasonality due to public school
calendars and budget cycles.

Due to all of the foregoing factors, the Company's quarterly revenues and
operating results are difficult to forecast, and the Company believes that
period-to-period comparisons of its operating results will not necessarily be
meaningful and should not be relied upon as an indication of future performance.
It is likely that the Company's operating results will fall below the
expectations of the Company, securities analysts or investors in some future
quarter. In such event, the trading price of the Common Stock would likely be
materially and adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

HISTORY OF OPERATING LOSSES; LIMITED OPERATING HISTORY. The Company
commenced operations in February 1996 and began generating revenues in first
quarter 1997. Because the Company has generated limited revenues to date, it has
incurred significant operating losses and negative cash flow since inception.
The Company has an accumulated deficit of approximately $9.2 million from
inception through March 31, 1998 and expects to incur additional losses for at
least the next two years, due primarily to substantial increases in sales and
marketing and research and development expenses. There can be no assurance that
the Company will ever generate sufficient revenues to achieve or sustain
profitability or generate positive cash flow. There can be no assurance that the
Company's cash resources following this Offering will be sufficient to fund the
Company's negative cash flow and expected capital expenditures for this period.
The Company, therefore, may need to obtain additional equity or debt financing
in the future. There can be no assurance that the Company will be able to obtain
the additional financing to satisfy its cash requirements on acceptable terms or
at all.

The Company has only a limited operating history upon which to base an
evaluation of its current business and prospects. The Company's prospects must
be considered in light of the risks and uncertainties frequently encountered by
companies in the early stage of development, particularly companies in new and
rapidly evolving markets such as neuroscience-based learning products. Such
risks include, but are not limited to: the demand for technology-based learning
products; the management of growth; demand for the Company's programs and
services; the ability of the Company to penetrate its target markets; and
competition. To address these risks, the Company must, among other things:
successfully gain market acceptance for Fast ForWord, particularly in the public
school market; successfully introduce and gain market acceptance for related new
products and services; respond to competitive developments; attract, integrate,
retain and motivate qualified personnel, particularly sales and marketing
professionals; and address new or evolving technologies and standards. There can
be no assurance that the Company will be successful in addressing such risks and
the failure to do so would have a material adverse effect on the Company's
business, financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

GOVERNMENT FUNDING. To date, the Company has generated limited revenues
from sales to public schools. However, the Company's future revenues are
dependent, in part, on its ability to increase revenues from public schools,
which in turn are largely dependent upon federal, state and local government
funding. Federal funding for educational technology has been made available
through certain legislation, including Title I of the Elementary and Secondary
Education Act of 1965, as amended ("Title I"), and the education rate discount
authorized by the Telecommunications Act of 1996 ("E-Rate"), and many states
have enacted similar legislation. Substantial curtailments, delays or reductions
in government budgets or funding for educational software or technology would
have a material adverse effect on the Company's business, financial condition
and results of operations. Although Fast ForWord can be implemented on a
school-wide basis, to date the program has been used by students in a separate
classroom using a "pullout" approach. Many educators and policy makers are
critical of programs which use a "pullout" approach, which may inhibit
acceptance of the Fast ForWord program.

9
<PAGE>
MANAGEMENT OF GROWTH AND EXPANSION. The Company has recently experienced a
period of significant expansion. The Company's historical growth has placed, and
any further growth would place, a significant strain on the Company's
managerial, operational, financial and other resources. The Company has grown
from five employees at March 31, 1996 to 99 employees at May 31, 1998. During
this period, the Company significantly expanded its operations, introduced Fast
ForWord and opened its first Fast ForWord Learning Centers. The Company has
limited experience in opening and operating Learning Centers, and there can be
no assurance it will be successful in opening and operating additional Learning
Centers. The Company's future success will depend, in part, upon the ability of
its senior management to manage growth effectively, which will require the
Company to implement additional management information systems, to develop
further its operating, administrative, financial and accounting systems and
controls and to maintain close coordination among its engineering, accounting,
finance, marketing, sales, customer support and professional services
organizations. The failure of the Company to successfully manage its growth
could have a material adverse effect on the Company's business, financial
condition and results of operations.

DEPENDENCE ON CONTINUED PRODUCT DEVELOPMENT. The Company's future success
will depend to a significant extent on its ability to enhance its existing
programs and develop new programs, including Fast ForWord II, a more advanced
pre-reading skills sequel to Fast ForWord, and additional products based on the
Company's proprietary technology. There can be no assurance that: (i) the
Company will be successful in developing and marketing new language-based
products, including enhancements to Fast ForWord if any, or new products that
address new market segments or respond to technological developments, evolving
industry standards or changing customer requirements; (ii) that the Company will
not experience difficulties that could delay or prevent the successful
development, introduction and sale of such new products; or (iii) such new
products will adequately meet the requirements of the marketplace and achieve
any significant degree of market acceptance. If release of any new products is
delayed or if these products fail to achieve market acceptance when released,
the Company's business, financial condition and results of operations could be
materially adversely affected. In addition, the introduction or announcement of
new product offerings, including enhancements if any, by the Company or the
Company's competitors or major hardware, systems or software vendors may cause
customers to defer or forgo purchases of the Company's products, which could
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, the Company attempts to maintain high
standards for the demonstrated clinical efficacy of its products. The Company's
adherence to these standards could delay or inhibit the introduction of new
products. Moreover, there can be no assurance that the Company's products will
not be rendered obsolete or that the Company will have sufficient resources to
make the necessary investments or be able to develop and market the products
required to maintain its competitive position. See "Business--Research and
Development."

DEPENDENCE ON PROPRIETARY TECHNOLOGY. The Company's ability to compete
effectively will depend in part on its ability to develop and maintain the
proprietary aspects of its technology and operate without infringing on the
proprietary rights of others. The Company relies on a combination of patents,
trademarks, copyrights, trade secret laws, confidentiality procedures and
contractual provisions to protect its proprietary rights in its products and
technology. The Company has filed patent applications in the United States and
internationally relating to its technology, including 22 with the United States
Patent and Trademark Office ("USPTO"). Additionally, the Company is the
exclusive licensee of the technology owned by UCSF and Rutgers with respect to
the basic speech and sound modification algorithms used in Fast ForWord pursuant
to a licensing agreement with the Regents of the University of California (the
"University License"). The licensed technology is the subject of a pending
patent application. There can be no assurance that any of the Company's or its
licensor's pending patent applications will result in the issuance of any
patents, or that, if issued, any such patents will offer protection against
competitors with similar technology. There can be no assurance that any patents
issued to the Company or its licensors will not be challenged, invalidated or
circumvented in the future or that the rights created thereunder will provide a
competitive advantage. The loss or inability to maintain the University License
could delay the

10
<PAGE>
Company's introduction of new products or cause the recall of products from the
market, which would have a material adverse effect on the Company's business,
financial condition and results of operations. In such event, even if the
Company could identify and license technology equivalent to the technology
covered by the University License, development and integration of such
alternative technology would be likely to delay the Company's product line,
which would have a material adverse effect on the Company's business, operating
results and financial condition. In addition, there can be no assurance that
competitors, many of whom have substantially greater resources than the Company
and have made substantial investments in competing technologies, will not seek
to apply for and obtain patents covering technologies that are more effective
than the Company's technologies, that would render the Company's technologies or
products obsolete or uncompetitive or that would prevent, limit or interfere
with the Company's ability to make, use or sell its products either in the
United States or in international markets.

The technology industry has been characterized by extensive litigation
regarding patents and other intellectual property rights. There can be no
assurance that the Company will not in the future become subject to patent
infringement claims and litigation or interference proceedings conducted in the
USPTO to determine the priority of inventions. The defense and prosecution of
intellectual property suits, USPTO interference proceedings and related legal
and administrative proceedings are both costly and time consuming. Litigation
may be necessary to enforce any patents issued to the Company, to protect trade
secrets or know-how owned by the Company or to determine the enforceability,
scope and validity of the proprietary rights of others. Any litigation or
interference proceedings will result in substantial expense to the Company and
significant diversion of effort by the Company's technical and management
personnel. An adverse determination in litigation or interference proceedings to
which the Company may become a party could subject the Company to significant
liabilities to third parties or require the Company to seek licenses from third
parties which may not be available on commercially reasonable terms or at all.

The Company's current products incorporate technologies which are the
subject of patents issued to, and patent applications filed by, others. The
Company has obtained licenses for certain of these technologies and may be
required to obtain licenses for others. There can be no assurance that the
Company will be able to obtain licenses for technology patented by others on
commercially reasonable terms, or at all, that it will be able to develop
alternative approaches if unable to obtain licenses or that the Company's
current and future licenses will be adequate for the operation of the Company's
business. The failure to obtain such licenses or identify and implement
alternative approaches could have a material adverse effect on the Company's
business, financial condition and results of operations.

The Company also relies upon trade secrets, technical know-how and
continuing invention to develop and maintain its competitive position, and no
assurance can be given that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise gain access to
the Company's trade secrets or disclose such technology, or that the Company can
meaningfully protect its right to its trade secrets, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Intellectual Property."

RISK OF PRODUCT DEFECTS; PRODUCT CLAIMS. Software programs frequently
contain errors or failures, especially when first introduced or when new
versions are released. The Company could, in the future, lose revenues as a
result of software errors or defects. There can be no assurance that, despite
testing by the Company and by current and potential customers, errors will not
be found in new products or releases, whether before or after commencement of
commercial shipments, resulting in loss of revenue or delay in market
introduction or acceptance, diversion of development resources, damage to the
Company's reputation, or increased service and warranty costs, any of which
could have a material adverse effect upon the Company's business, financial
condition and results of operations. The Company has recently adopted a refund
policy under which the Company currently provides a refund in the event that a
child's performance on Fast ForWord indicates (based on criteria provided by the
Company in the policy) that the program is too difficult or too easy for the
child. In the school setting, the school is entitled to enroll a new child in
the program, rather than receive a refund. While the Company does not expect
this policy to have

11
<PAGE>
a material effect on its operations, the Company has limited experience with
this policy, and there can be no assurance that it could not have a material
adverse effect in the future on the Company's business, financial condition and
results of operations. The Company markets products to the public and faces an
inherent business risk of financial exposure to product liability claims. In
addition, to the extent the Company provides professional or similar services,
the Company may also face a risk of exposure to professional liability claims.
The Company currently carries product and professional liability insurance that,
in general, covers product and professional liability claims up to the policy
limits. There can be no assurance that such insurance will continue to be
available to the Company at a reasonable cost, if at all, or that such insurance
will be adequate to satisfy any liability or litigation expenses. Any claim or
claims against the Company, regardless of their merit or eventual outcome, could
have a material adverse effect on the Company's business, financial condition
and results of operations.

LENGTHY SALES CYCLE. The use of the Company's programs and services
generally requires the Company to provide a significant level of education to
prospective speech and language professionals, schools, parents and other
learning facilitators regarding the use and benefits of the Company's programs
and services. In addition, the Company's programs involve a significant
commitment of time and resources, and, with respect to the public schools
market, are subject to school budget cycles. For these and other reasons, the
period between initial contact and the implementation of the Company's programs
and services may be lengthy and is subject to a number of significant delays
over which the Company has little or no control. The Company's sales cycle could
be lengthened as it targets school- and district-wide sales. Delay in the sale
or implementation of a limited number of sales transactions could have a
material adverse effect on the Company's business, financial condition and
results operations and cause the Company's operating results to vary
significantly from quarter to quarter. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business--Sales and
Marketing."

OPPOSING SCIENTIFIC THEORIES. The Company's first product, Fast ForWord, is
based on particular theories of neuroscience and language acquisition. The
Company's founders are prominent in their academic fields and are actively
involved in academic debate about their own and opposing scientific theories of
neuroscience and language acquisition. As a result, the theories on which Fast
ForWord is based have been, and are likely to be, subject to public debate and
challenges. Certain academics and educators are opposed to the principles and
methodologies underlying and associated with the Company's products. Some of
these philosophical opponents of the Company's products and services,
particularly to the extent they author publications, could influence the market
for the Company's products and services. Consequently, academic publications and
debate challenging the theories of neuroscience and language acquisition
propounded by the founders and others could significantly affect the market for
the Company's programs and services and could have a material adverse effect on
the Company's business, financial condition and results of operations.

ADOPTION OF INTERNET SOLUTIONS. One of the key features of Fast ForWord is
its daily uploading and downloading of information to and from the Company's
proprietary database via the Internet. The Internet has experienced, and may
continue to experience, significant growth in the number of its users and amount
of traffic. There can be no assurance that the Internet infrastructure will
continue to support the demands placed on it by this continued growth or that
the performance or reliability of the Internet will not be adversely affected by
this continued growth. In addition, the Internet could lose its viability due to
delays in the development or adoption of new standards and protocols to handle
increased levels of activity or due to increased governmental regulation.
Changes in or insufficient availability of communications services to support
the Internet could result in slower response times and could adversely affect
their usage. If the use of the Internet, particularly within schools and among
speech and language professionals in private practice, fails to develop or
develops more slowly than expected, or if the Internet infrastructure does not
adequately support continued growth, the Company's business, financial condition
and results of operations would be materially and adversely affected. See
"Business--Computer Technology."

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<PAGE>
COMPETITION. The educational technology market in which the Company
operates is very competitive. The Company competes primarily against providers
of traditional methods of remediation for language-based learning problems,
which typically require several years of one-on-one training for children with
identified language-based learning problems. Although the traditional approach
to language-based learning problems is fundamentally different from the approach
taken by the Company, such programs are more widely known and accepted and,
therefore, represent significant competition. In addition, the Company competes
to some extent with other companies offering educational software products to
schools and speech and language professionals in private practice and with other
operators of learning centers. Existing competitors may continue to broaden
their product lines, and potential competitors, including large software
developers and educational publishers, may enter or increase their focus on the
school market, resulting in greater competition for the Company. Moreover, the
Company expects that it will face additional competition from new entrants into
the market. Many competitors have substantially greater technical, marketing and
distribution resources than the Company. There can be no assurance that the
Company will continue to be able to market its products successfully or compete
effectively in the educational technology market. See "Business--Competition."

DEPENDENCE ON KEY PERSONNEL; ABILITY TO ATTRACT AND RETAIN QUALIFIED
PERSONNEL. The Company's success depends to a significant extent upon the
continued active participation of certain key members of management. The loss of
one or more of these persons could have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
believes that its future success will depend upon its ability to continue to
attract, motivate and retain highly-skilled managerial, sales and marketing, and
product development personnel. Competition for such personnel is intense. The
failure to attract or retain the necessary personnel, as to which there can be
no assurance, would have a material adverse effect on the Company's business,
financial condition and results of operations.

YEAR 2000 COMPLIANCE. Many currently installed computer systems and
software products are coded to accept only two digit entries in the date code
field and cannot distinguish century dates prior to January 1, 2000 from dates
on and after January 1, 2000. These date code fields will need to distinguish
dates prior to January 1, 2000 from dates on and after January 1, 2000 dates
("Year 2000 Compliance") and, as a result, many companies' software and computer
systems may need to be upgraded or replaced in order to reach Year 2000
Compliance. Although the Company believes that its products and internal systems
are in Year 2000 Compliance, the Company utilizes third-party equipment and
software that may not be in Year 2000 Compliance. Failure of such third-party
equipment or software to be in Year 2000 Compliance could require the Company to
incur unanticipated expenses to remedy any problems, which could have a material
adverse effect on the Company's business, financial condition and results of
operations. Furthermore, the purchasing patterns of customers or potential
customers may be affected by Year 2000 Compliance issues as educational
institutions expend significant resources to correct their current systems for
Year 2000 Compliance. These expenditures may result in reduced funds available
to purchase products and services, such as those offered by the Company, which
could have a material adverse effect on the Company's business, financial
condition and results of operations.

IMPACT OF GOVERNMENT REGULATION. The Company's business is potentially
subject to or affected by a variety of federal, state and local laws and
regulations, including, without limitation laws and regulations relating to: (i)
education; (ii) licensing of speech and language professionals in private
practice and delivery of speech and language testing and remediation services;
(iii) consumer protection and anti-fraud and related protections, including the
regulation of referrals by professionals; and (iv) government funding.
Compliance with these and other laws and regulations impose additional costs on
the conduct of the Company's business, and failure to comply with such laws and
regulations, changes in such laws and regulations, or in their applicability to
the business of the Company may impose additional costs, and could materially
and adversely affect the Company's business, financial condition and results of
operations. While the Company has not expressly agreed to grant any distribution
territory or franchise to any person or entity, in the future the Company may
make such arrangements, or may be deemed to have made such

13
<PAGE>
arrangements, and could, as a result, be subject to laws regulating distributors
or franchisors. Such regulation could materially and adversely affect the
Company's business, financial condition and results of operations. In addition,
while the Company has been advised on an unofficial basis by officials of the
United States Food and Drug Administration ("FDA") that Fast ForWord is an
educational tool not subject to FDA regulation, there can be no assurance that
the FDA will not make a contrary determination in the future with respect to
Fast ForWord or other products under development by the Company. Such regulation
could, among other effects, impose numerous additional requirements on the
marketing of the Company's products, cause delays in bringing products to
market, prevent the introduction of products or necessitate their withdrawal,
any of which could materially and adversely affect the Company's business,
financial condition and results of operations.

CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS. Following the completion
of this Offering, the Company's executive officers and directors and their
respective affiliates will beneficially own approximately % of the outstanding
Common Stock ( % if the Underwriters exercise their over-allotment option in
full). As a result, these stockholders, by acting in concert, will be able to
exercise significant influence over all matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions. Such concentration of ownership may also have the effect of
delaying, preventing or deterring a change in control of the Company. In
addition, in connection with the issuance of Series B Preferred Stock and
warrants to purchase Series C Preferred Stock, the Company entered into an
agreement that requires the Company, following the completion of this Offering
and as long as Warburg Pincus Ventures, L.P. ("Ventures") owns at least 10% or
20% of the outstanding Common Stock, to nominate and use its best efforts to
elect one or two individuals, respectively, designated by Ventures for election
to the Board of Directors. See "Certain Transactions" and "Principal and Selling
Stockholders."

NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE. Prior to this
Offering, there has been no public market for the Company's Common Stock and
there can be no assurance that an active public market for the Common Stock will
develop or be sustained after this Offering. The initial offering price will be
determined by negotiation among the Company and the Underwriters based upon
several factors and may bear no relation to the price at which the Common Stock
will trade after this Offering. For a discussion of the factors taken into
account in determining the initial public offering price, see "Underwriting."
The market price of the Company's Common Stock is likely to be highly volatile
and could be subject to wide fluctuations in response to the timing of future
product releases, if any, by the Company, variations in the Company's annual or
quarterly financial results or those of its competitors, changes by financial
research analysts in their estimates of the future earnings of the Company,
conditions in the economy in general or in the Company's industry in particular,
unfavorable publicity or changes in applicable laws and regulations affecting
the Company or the educational technology industry or other events or factors,
many of which are beyond the Company's control. In addition, the stock market
has experienced significant price and volume fluctuations that have affected the
market prices of educational technology companies and that often have been
unrelated or disproportionate to the operating performance of such companies.
These broad market fluctuations may adversely affect the market price of the
Company's Common Stock. In the past, following periods of volatility in the
market price of a company's stock, securities class action litigation has
occurred against that company. Such litigation could result in substantial costs
and would, at a minimum, divert management's attention and resources, which
could have a material adverse effect of the Company's business, financial
position and results of operations. Any adverse determination in such litigation
could also subject the Company to significant liabilities.

SHARES ELIGIBLE FOR FUTURE SALE. Sales of substantial amounts of shares in
the public market following this Offering could have a material adverse effect
on the market price of the Common Stock. Immediately following this Offering,
the Company will have shares of Common Stock outstanding assuming no
exercise of the Underwriters' over-allotment option and no exercise of
outstanding options or warrants after March 31, 1998. Of these shares, all the
shares sold in this Offering will be freely tradable without restrictions or
further registration under the Securities Act of 1933, as amended (the
"Securities Act").

14
<PAGE>
The remaining 9,244,734 shares of Common Stock will be "restricted securities"
as defined by Rule 144 ("Rule 144") adopted under the Securities Act. These
shares may be sold in the public market only if registered or if they qualify
for an exemption from registration under Rule 144 or Rule 701 ("Rule 701")
adopted under the Securities Act. The Company is unable to predict the effect
that future sales made under Rule 144, Rule 701 or otherwise will have on the
market price of the Common Stock prevailing at that time. In addition, following
closing of this Offering the Company intends to register shares of Common Stock
issuable upon the exercise of stock options granted under the Company's stock
option plans. After the effective date of such registration, shares issued upon
the exercise of stock options generally will be available for sale in the public
market. The Company, its executive officers and directors and certain
stockholders beneficially owning in the aggregate 8,849,977 shares of Common
Stock have agreed, subject to certain limited exceptions, not to offer, sell,
contract to sell, grant any option to purchase or otherwise dispose of any
shares of Common Stock, without the prior written consent of NationsBanc
Montgomery Securities LLC, for a period of 180 days after the first day any of
the Common Stock to be sold in this Offering is released by the Underwriters for
sale to the public. Any shares subject to these lock-up agreements may be
released at any time by NationsBanc Montgomery Securities LLC, with or without
notice. The holders of approximately 3,678,571 shares of Common Stock are
entitled to certain registration rights with respect to such shares. See "Shares
Eligible for Future Sale" and "Underwriting."

IMMEDIATE AND SUBSTANTIAL DILUTION. Purchasers of Common Stock in this
Offering will experience immediate and substantial dilution of $ per share.
To the extent outstanding options or warrants to purchase Common Stock are
exercised or the Company issues additional shares of Common Stock, they may
experience further dilution. See "Dilution."

POSSIBLE ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS. The Company's
Amended and Restated Certificate of Incorporation (the "Restated Certificate")
authorizes the Board of Directors to issue up to 1,000,000 shares of Preferred
Stock and to determine the price, rights, preferences and privileges, including
voting rights, of those shares without any further vote or action by the
stockholders. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any Preferred Stock
that may be issued in the future. The Restated Certificate and Amended and
Restated Bylaws (the "Restated Bylaws"), among other things, require that
stockholder actions occur at duly called meetings of the stockholders, do not
permit cumulative voting in the election of directors and require advance notice
of stockholder proposals and director nominations. Additionally, the Restated
Certificate provides for a classified Board of Directors and specifies that the
authorized number of directors may be changed only by resolution of the Board of
Directors. Amendment of these provisions requires the vote of stockholders
holding at least two-thirds of the Company's outstanding shares. Certain
provisions contained in the Company's charter documents and certain applicable
provisions of Delaware law could serve to depress the Company's stock price or
discourage a hostile bid in which stockholders could receive a premium for their
shares. In addition, these provisions could have the effect of making it more
difficult for a third party to acquire a majority of the outstanding voting
stock of the Company, or delay, prevent or deter a merger, acquisition or tender
offer in which the Company's stockholders could receive a premium for their
shares, a proxy contest for control of the Company or other change in the
Company's management. See "Description of Capital Stock."

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<PAGE>
USE OF PROCEEDS

The net proceeds to the Company from the sale of the shares of
Common Stock offered by the Company, at an assumed initial public offering price
of $ per share, are estimated to be approximately $ ($ if
the Underwriters' over-allotment option is exercised in full), after deducting
underwriting discounts and estimated offering expenses payable by the Company.
The Company intends to use a portion of the net proceeds to repay the
outstanding balances under its existing bank lines of credit, estimated to be
approximately $2.5 million upon completion of this Offering. In addition, the
Company plans to substantially increase sales and marketing expenses and
research and development expenses, which are expected to be funded in part by
gross profits and in part by use of a portion of the net proceeds from this
Offering. The actual amount and timing of such expenditures will depend on
business and market developments. The Company intends to use the remaining net
proceeds for general corporate purposes, including working capital. Pending such
uses, the net proceeds of this Offering will be invested in short-term,
interest-bearing, investment grade securities.

The Company has a $3.0 million unsecured line of credit with BankBoston N.A.
which expires in May 1999. Borrowings under the line of credit bear interest, at
the election of the Company, at the bank's base rate, or the adjusted LIBOR plus
1.75%, and are guaranteed by Ventures. The Company also has two lines of credit
with Silicon Valley Bank in the amounts of $400,000 and $450,000 to finance
equipment purchases through June 1998 and August 1998, respectively. Borrowings
under these lines of credit bear interest at the bank's prime rate plus 3% and
are due in monthly installments through June 1999 and August 2000, respectively.
Borrowings are secured by substantially all of the Company's assets, excluding
intellectual property.

If the Underwriters' over-allotment option is exercised, the Company will
not receive any proceeds from the sale of shares of Common Stock by the Selling
Stockholders. See "Principal and Selling Stockholders."

DIVIDEND POLICY

The Company has never paid any cash dividends on its capital stock. The
Company currently anticipates that it will retain earnings to support operations
and to finance the growth and development of the Company's business and does not
anticipate paying cash dividends for the foreseeable future. In addition, under
the Company's existing lines of credit, there are restrictions on the Company's
ability to pay dividends without consent of the lenders.

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<PAGE>
CAPITALIZATION

The following table sets forth the capitalization of the Company as of March
31, 1998, on an actual basis and as adjusted to reflect: (i) the sale by the
Company of the shares of Common Stock offered hereby at an assumed
initial public offering price of $ per share after deducting underwriting
discounts and estimated offering expenses, and the application of the estimated
net proceeds therefrom; and (ii) the conversion of all outstanding Preferred
Stock into Common Stock upon completion of this Offering. This table should be
read in conjunction with the Financial Statements and Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
MARCH 31, 1998
------------------------------
ACTUAL AS ADJUSTED
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, including current portion........................................ $ 282 $ --
Redeemable convertible Preferred Stock, $0.001 par value per share; 3,678,571
shares issued and outstanding actual, no shares issued and outstanding as
adjusted........................................................................ $ 8,002 $
Stockholders' equity (deficit):
Preferred Stock, $0.001 par value per share; 7,000,000 shares authorized
(including 4,700,000 shares designated as redeemable convertible Preferred
Stock); 1,419,681 shares issued and outstanding actual; 1,000,000 shares
authorized, no shares issued and outstanding as adjusted..................... 2,355
Common Stock, $0.001 par value per share; 17,500,000 shares authorized;
4,146,482 shares issued and outstanding actual; 50,000,000 shares authorized,
shares issued and outstanding as adjusted (1)........................... 866
Deferred compensation (2)........................................................ (595) (595)
Accumulated deficit.............................................................. (9,242) (9,242)
------- -------
Total stockholders' equity (deficit)........................................... (6,616)
------- -------
Total capitalization......................................................... $ 1,668 $
------- -------
------- -------
</TABLE>

- --------------------------

(1) Based on the number of shares outstanding as of March 31, 1998. Excludes:
(i) 1,639,252 shares of Common Stock issuable upon exercise of options and
warrants outstanding as of June 10, 1998 with a weighted average exercise
price of $0.65 per share; (ii) 2,800,000 additional shares of Common Stock
reserved for issuance under the Company's 1998 Equity Incentive Plan; (iii)
100,000 shares of Common Stock reserved for issuance under the Company's
1998 Non-Employee Directors' Stock Option Plan; and (iv) 500,000 shares of
Common Stock reserved for issuance under the Company's 1998 Employee Stock
Purchase Plan. See "Management--Employee Benefit Plans," "Certain
Transactions" and "Description of Capital Stock."

(2) See Note 5 of Notes to the Financial Statements included elsewhere in this
Prospectus.

17
<PAGE>
DILUTION

The pro forma net tangible book value of the Company at March 31, 1998 was
approximately $ or $ per share of Common Stock. Pro forma net
tangible book value per share represents the amount of the Company's total
tangible assets less total liabilities, divided by the number of shares of
Common Stock outstanding after giving effect to the automatic conversion of all
outstanding shares of Preferred Stock into an aggregate of 5,098,252 shares of
Common Stock. After giving effect to the sale by the Company of the
shares of Common Stock offered hereby at an assumed initial public offering
price of $ per share after deducting the underwriting discounts and estimated
offering expenses payable by the Company and applying the estimated net proceeds
therefrom, the adjusted net tangible book value of the Company as of March 31,
1998 would have been approximately $ million, or $ per share of Common
Stock. This represents an immediate increase in net tangible book value of $
per share of Common Stock to existing stockholders and an immediate dilution in
net tangible book value of $ per share to new investors purchasing shares at
the assumed initial public offering price. The following table illustrates this
per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price................................. $
---------
Pro forma net tangible book value per share....................... $
Increase per share attributable to new investors..................
---------
Net tangible book value per share, as adjusted for the Offering.......
---------
Dilution per share to new investors................................... $
---------
---------
</TABLE>

The following table summarizes, on a pro forma basis as of March 31, 1998,
the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid by the existing
stockholders and by the new investors (at an assumed initial public offering
price of $ per share for shares purchased in this Offering, before deducting
underwriting discounts and estimated offering expenses):

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------- ---------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders (1).................................... % $ % $
New investors................................................
----- --------- ----- ---------
Total...................................................... 100.0% $ 100.0%
----- --------- ----- ---------
----- --------- ----- ---------
</TABLE>

- --------------------------
(1) If the Underwriters' over-allotment option is exercised in full, the number
of shares held by Existing Stockholders will be reduced to shares, or
% of the number of shares to be outstanding after this Offering.

The foregoing table assumes no exercise of outstanding stock options and
warrants and excludes: (i) 1,639,252 shares of Common Stock issuable upon
exercise of options and warrants outstanding as of June 10, 1998 with a weighted
average exercise price of $0.65 per share; (ii) 2,800,000 additional shares of
Common Stock reserved for issuance under the Company's 1998 Equity Incentive
Plan; (iii) 100,000 shares of Common Stock reserved for issuance under the
Company's 1998 Non-Employee Directors' Stock Option Plan; and (iv) 500,000
shares of Common Stock reserved for issuance under the Company's 1998 Employee
Stock Purchase Plan. See "Capitalization," "Management--Employee Benefit Plans,"
"Certain Transactions" and "Description of Capital Stock." To the extent that
options or warrants are exercised, there will be further dilution to new
investors.

18
<PAGE>
SELECTED FINANCIAL DATA

(IN THOUSANDS, EXCEPT PER SHARE DATA)

The following table sets forth certain historical financial data for the
Company as of and for the years ended December 31, 1996 and 1997 and as of and
for the three months ended March 31, 1997 and 1998. The Company commenced
operations in February 1996. The historical financial data as of and for the
years ended December 31, 1996 and 1997 were derived from the Financial
Statements of the Company that have been audited by Ernst & Young LLP,
independent auditors, and that are included elsewhere in this Prospectus and are
qualified by reference to such financial statements and the notes thereto. The
historical financial data as of and for the three months ended March 31, 1997
and 1998 were derived from unaudited financial statements included elsewhere in
this Prospectus. In the opinion of management, the historical financial data as
of and for the three months ended March 31, 1997 and 1998 have been prepared on
the same basis as the audited financial statements and include all adjusting
entries (consisting only of normal recurring adjustments) necessary to present
fairly the information set forth herein. The historical financial data presented
herein are not necessarily indicative of the results of operations for any
future period and should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the Company's
Financial Statements and Notes thereto appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED
DECEMBER 31, MARCH 31,
-------------------- --------------------
1996 1997 1997 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Programs................................................................ $ -- $ 2,249 $ 28 $ 603
Services................................................................ -- 713 125 44
--------- --------- --------- ---------
Total revenues........................................................ -- 2,962 153 647
Cost of revenues:
Programs................................................................ -- 481 9 127
Services................................................................ -- 468 56 34
--------- --------- --------- ---------
Total cost of revenues................................................ -- 949 65 161
--------- --------- --------- ---------
Gross profit.............................................................. -- 2,013 88 486
Operating expenses:
Sales and marketing..................................................... 164 2,646 289 732
Research and development................................................ 1,514 1,965 360 650
General and administrative.............................................. 933 2,537 473 811
--------- --------- --------- ---------
Total operating expenses.............................................. 2,611 7,148 1,122 2,193
--------- --------- --------- ---------
Operating loss............................................................ (2,611) (5,135) (1,034) (1,707)
Interest income, net...................................................... 70 162 29 20
Other income (expense), net............................................... 44 (85) -- --
--------- --------- --------- ---------
Net loss.................................................................. $ (2,497) $ (5,058) $ (1,005) $ (1,687)
--------- --------- --------- ---------
--------- --------- --------- ---------
Pro forma basic and diluted net loss per share (1)........................ $ (0.60) $ (0.18)
--------- ---------
--------- ---------
Shares used in computing pro forma net loss per share (1)................. 8,436 9,203
--------- ---------
--------- ---------
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997 MARCH 31, 1998
--------- --------- ---------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................................................ $ 3,562 $ 1,569 $ 87
Total assets................................................................... 4,306 4,456 3,018
Long-term debt, including current portion...................................... 35 330 282
Redeemable convertible preferred stock......................................... 4,002 8,002 8,002
Stockholders' equity (deficit)................................................. (85) (5,064) (6,616)
</TABLE>

- --------------------------
(1) See Note 1 of Notes to Financial Statements included elsewhere in this
Prospectus for an explanation of the number of pro forma shares used in per
share calculations.

19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH "SELECTED FINANCIAL
DATA" AND THE COMPANY'S FINANCIAL STATEMENTS AND RELATED NOTES THERETO INCLUDED
ELSEWHERE IN THIS PROSPECTUS. THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES, INCLUDING, WITHOUT LIMITATION,
STATEMENTS OF THE COMPANY'S PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS. THE
COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE DISCUSSED IN THIS
PROSPECTUS. FACTORS THAT MAY CAUSE OR CONTRIBUTE TO SUCH A DIFFERENCE INCLUDE,
BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS," AS WELL AS THOSE
DISCUSSED ELSEWHERE IN THIS PROSPECTUS.

OVERVIEW

The Company commenced operations in February 1996, and, until April 1997, it
devoted substantially all of its efforts to developing its Fast ForWord program,
performing a field trial, recruiting and training personnel, establishing
relationships with and training teachers and speech and language professionals,
and raising capital. Since the commercial launch of Fast ForWord in April 1997,
the Company has also devoted efforts to sales and marketing activities. The
Company has an accumulated deficit of $9.2 million from inception through March
31, 1998 and expects to incur additional losses for at least the next two years,
due primarily to substantial increases in sales and marketing and research and
development expenses. The Company expects that losses will fluctuate from
quarter to quarter and that such fluctuations may be substantial.

REVENUES. The Company derives revenues from program sales and service fees.
Program revenues are derived from the sale of Fast ForWord programs, which are
generally sold for $850 per child, except where the Company has negotiated
reference site or volume discounts in connection with large sales. Revenues on
sales of Fast ForWord are recognized over the average duration of the program.
Service revenues are derived from the Company's Fast ForWord training seminars
for learning facilitators and from services provided to customers of the
Company's Learning Centers. Revenues from seminars are recognized when the
seminar is held. Revenues from Learning Center services are recognized over the
average duration of the program. The Company only recently began operating
Learning Centers and revenues to date have been minimal.

The Company's revenues have been derived exclusively from the sale of Fast
ForWord programs and related seminars and services. While the Company is
developing additional products based upon its proprietary technology and
neuroscience expertise, there can be no assurance that it will be successful in
doing so. In addition, to date the substantial majority of the Company's sales
of Fast ForWord have been through speech and language professionals. In the
future, the Company intends to focus a substantial part of its sales and
marketing efforts on public schools and on direct sales to parents through
Learning Centers. Given the limited historical experience of the Company selling
Fast ForWord to schools and operating Learning Centers, there can be no
assurance that the Company will be successful in these strategies. Furthermore,
due to lengthy school budget cycles, possible delays related to government
funding and the inherent complexity of selling to schools and school districts,
the Company expects that its sales cycle could be significantly longer than that
experienced historically as it increasingly focuses on sales to this market. As
a result, the Company may have limited visibility on its future revenues, and
such revenues may fluctuate substantially.

COST OF REVENUES. Cost of revenues consists of program costs and service
costs. Program costs consist of costs associated with the Fast ForWord program,
including royalties, manufacturing, packaging, documentation, fulfillment,
Internet hosting and technical support costs. Service costs consist primarily of
the costs of providing the Company's training seminars, including personnel,
materials, facilities, travel and Learning Center service costs. The Company
generally recognizes significantly higher gross margins on its program sales
than on its service sales. As a result of these factors, the Company expects
that gross margins will fluctuate due to changes in the mix between program
revenues and service revenues.

20
<PAGE>
OPERATING EXPENSES. The Company's operating expenses consist of sales and
marketing expenses, research and development expenses and general and
administrative expenses. Sales and marketing expenses principally consist of
salaries and compensation paid to employees engaged in sales and marketing
activities, advertising and promotional materials, public relations costs,
telemarketing and travel. Research and development expenses principally consist
of salaries and compensation paid to employees and consultants engaged in
research and product development activities, product testing, and software and
equipment costs. The Company expenses all software development costs associated
with a product until technological feasibility is established, after which time
all such costs are capitalized until the product is available for commercial
release and are amortized over the estimated lives of the related products.
Technological feasibility is deemed established upon completion of a working
version. To date, capitalizable software development costs have been
insignificant and have been charged to research and development expense. General
and administrative expenses principally consist of salaries and compensation
paid to employees and consultants other than those engaged in research and
development and sales and marketing activities, facilities and related
depreciation, in-house and outside legal and accounting fees and related costs,
and travel.

The Company recorded deferred compensation of $508,000 during the year ended
December 31, 1997 and $318,000 during the three months ended March 31, 1998,
representing the difference between the exercise price and the deemed fair value
of certain of the Company's stock options granted to employees. These amounts
are being amortized by charges to operations over the vesting periods of the
individual stock options. Such amortization amounted to $124,000 for the year
ended December 31, 1997 and $107,000 for the three months ended March 31, 1998.
The Company expects to record additional deferred compensation of approximately
$480,000 relating to options granted during the three months ending June 30,
1998. The remaining aggregate deferred compensation of $1.1 million will be
amortized over the vesting period of the options (generally five years).
Additionally, the Company expects to record charges to operations of
approximately $456,000 principally in third quarter 1998, in connection with
warrants to purchase 100,000 shares of the Company's Common Stock. Such warrants
were issued to Ventures in June 1998 in connection with the stockholder's
guarantee of the Company's new $3.0 million line of credit. The Company intends
to repay borrowings under the line of credit from the proceeds of this Offering.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, certain financial
data for the Company expressed as a percentage of revenues (unless otherwise
noted). The Company commenced operations, and was in the development stage, in
1996. As a result, there were no revenues, cost of revenues or gross profits in
1996.

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
YEAR ENDED
DECEMBER 31, ----------------------------
1997 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
Revenues:
Programs............................................................. 75.9% 18.3% 93.2%
Services............................................................. 24.1 81.7 6.8
------ ------ ------
Total revenues..................................................... 100.0 100.0 100.0
Cost of revenues:
Programs (1)......................................................... 21.4 32.1 21.1
Services (2)......................................................... 65.6 44.8 77.3
------ ------ ------
Total cost of revenues............................................. 32.0 42.5 24.9
------ ------ ------
Gross margin........................................................... 68.0% 57.5% 75.1%
------ ------ ------
------ ------ ------
</TABLE>

- --------------------------

(1) Program costs are expressed as a percentage of program revenues.

(2) Service costs are expressed as a percentage of service revenues.

21
<PAGE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31,
1997

REVENUES. Revenues increased to $647,000 in the three months ended March
31, 1998 from $153,000 in the comparable period in 1997. This increase was
primarily attributable to an increase in program revenues from $28,000 to
$603,000, resulting from increased sales of Fast ForWord, which was commercially
released in April 1997. This revenue increase was partially offset by a decline
in service revenues from $125,000 to $44,000, resulting from the Company's
planned decrease in the number of seminars offered to learning facilitators as
the Company shifted its seminar strategy to focus on fewer, more extensive
seminars.

COST OF REVENUES. Cost of revenues increased to $161,000 in the three
months ended March 31, 1998 from $65,000 in the comparable period in 1997. This
increase was primarily attributable to higher cost of revenues associated with
increased sales of Fast ForWord. As a percentage of revenues, costs of revenue
declined from 42.5% to 24.9% primarily because program revenues, which typically
have significantly lower costs as a percentage of revenues, represented a higher
proportion of total revenues.

SALES AND MARKETING EXPENSES. Sales and marketing expenses increased to
$732,000 in the three months ended March 31, 1998 from $289,000 in the
comparable period in 1997. This increase was primarily attributable to increased
personnel costs. The Company expects to substantially increase sales and
marketing expenses in the future as it increases its sales and marketing efforts
for Fast ForWord and any future products.

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased to $650,000 in the three months ended March 31, 1998 from $360,000 in
the comparable period in 1997. This increase was primarily attributable to
personnel costs, software and equipment related costs, and consulting fees. The
Company expects to substantially increase research and development expenses in
the future as it continues to refine Fast ForWord and develop additional
products based upon its proprietary technology and neuroscience expertise.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $811,000 in the three months ended March 31, 1998 from $473,000 in
the comparable period in 1997. This increase was primarily attributable to
personnel costs, legal and other administrative costs, and facilities costs
related to the Company's move to a new headquarters facility in September 1997.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

REVENUES. Revenues were $3.0 million in 1997 and were primarily
attributable to the introduction of training seminars in January 1997 and the
commercial release of Fast ForWord in April 1997. The Company was in the
development stage during 1996 and did not have revenues.

COST OF REVENUES. Cost of revenues was $949,000 in 1997 and was primarily
attributable to costs associated with providing training seminars and costs of
the Fast ForWord program. The Company was in the development stage during 1996
and did not have revenues or associated costs. As a percentage of program
revenues, program costs were 21.4%. Services costs were 65.6% of services
revenue.

SALES AND MARKETING EXPENSES. Sales and marketing expenses increased to
$2.6 million in 1997 from $164,000 in 1996. This increase was primarily
attributable to the establishment of a sales force and a marketing organization,
public relations costs, telemarketing service costs, advertising and other
promotional materials and services in 1997.

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased to $2.0 million in 1997 from $1.5 million in 1996. This increase was
primarily attributable to increased personnel, software and equipment-related
costs as well as costs related to the commercial release of Fast ForWord in
1997. Research and development expenses in 1996 included $554,000 associated
with entering into the University License.

22
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $2.5 million in 1997 from $933,000 in 1996. This increase was
primarily attributable to the hiring of executives and other administrative
staff, increases in legal and other professional services costs, increases in
software and equipment-related costs and increases in facilities costs resulting
from the Company's move to a new headquarters facility in 1997.

PROVISION FOR INCOME TAXES. The Company recorded no provision for income
taxes in the years ended December 31, 1996 and 1997 as it incurred losses during
such periods. At December 31, 1997, the Company had net operating loss
carryforwards and research credit carryforwards for federal income tax purposes
of approximately $6,600,000 and $85,000, respectively. The net operating loss
carryforwards will expire in years 2011 through 2012. Utilization of the net
operating losses may be subject to a substantial annual limitation, due to the
ownership change limitations provided by the Internal Revenue Code of 1986. The
annual limitation may result in the expiration of net operating losses before
utilization. At December 31, 1996 and 1997, the Company had approximately $1.0
million and $3.0 million, respectively, of deferred tax assets, comprised
primarily of net operating loss carryforwords. Realization of deferred tax
assets is dependent upon future earnings, if any, the timing and amount of which
are uncertain. Accordingly, the net deferred tax assets have been fully offset
by a valuation allowance.

QUARTERLY RESULTS OF OPERATIONS

The Company's quarterly operating results have varied significantly in the
past and are expected to fluctuate significantly in the future as a result of a
variety of factors, many of which are beyond the Company's control. Factors that
may affect the Company's quarterly operating results include among others: (i)
demand for technology-based education and training products; (ii) size and
timing of product orders and implementation; (iii) revenue mix between products
and services; (iv) timely development, introduction and market acceptance of the
Company's existing and future products, if any; (v) pricing of the Company's
programs and services; (vi) number and timing of Learning Center openings and
closings; (vii) terms under which Learning Centers are operated; (viii)
competitive conditions; (ix) ability to attract and retain experienced
personnel; (x) availability of government funding for public schools; (xi)
public school calendars and budget cycles; (xii) number and timing of Fast
ForWord training seminars for learning facilitators; and (xiii) general economic
and market conditions. The Company's limited operating history and the emerging
nature of its market make prediction of future revenues and expenses difficult.
The Company's expense levels are based in part on its expectations as to future
revenues and to a large extent are fixed in the short term. There can be no
assurance that the Company will be able to predict its future revenues
accurately and the Company may be unable to adjust spending in a timely manner
to compensate for any unexpected revenue shortfall. Accordingly, any significant
shortfall of revenues in relation to the Company's expectations could cause
significant fluctuations in quarterly operating results, which would have an
adverse effect on the Company's business, financial condition and results of
operations.

23
<PAGE>
Due to all of the foregoing factors, the Company's quarterly revenues and
operating results are difficult to forecast, and the Company believes that
period-to-period comparisons of its operating results will not necessarily be
meaningful and should not be relied upon as an indication of future performance.

LIQUIDITY AND CAPITAL RESOURCES

From inception through March 31, 1998, the Company used approximately $7.1
million of cash in operating activities, primarily to finance operating losses
and working capital needs. During this same period, the Company used $1.9
million for investing activities, consisting principally of the acquisition of
computer equipment, furniture and fixtures. These cash needs have been primarily
financed through the sale of equity securities and borrowings under the
Company's existing bank lines of credit. The Company currently anticipates
paying down all indebtedness under its existing bank lines of credit from the
proceeds of this Offering. As of March 31, 1998, the Company had cash and cash
equivalents of $1.3 million.

In June 1998, the Company obtained a $3.0 million unsecured line of credit
with BankBoston N.A. which expires in May 1999. Borrowings under the line of
credit bear interest, at the election of the Company, at the bank's base rate,
or the adjusted LIBOR plus 1.75%, and are guaranteed by Ventures. The Company
also has two lines of credit with Silicon Valley Bank in the amounts of $400,000
and $450,000 to finance equipment purchases through June 1998 and August 1998,
respectively. Borrowings under these lines of credit bear interest at the bank's
prime rate plus 3.0% and are due in monthly installments through June 1999 and
August 2000, respectively. Borrowings are secured by substantially all of the
Company's assets, excluding intellectual property. Outstanding borrowings under
these lines of credit amounted to $242,000 at March 31, 1998. The Company
intends to use a portion of the net proceeds of this Offering to repay the
outstanding balances under its existing bank lines of credit, estimated to be
approximately $2.5 million, upon completion of this Offering.

The Company believes that funds generated from operations together with the
net proceeds from this Offering and available borrowings under its existing
lines of credit will be sufficient to finance its anticipated operating losses,
planned capital expenditure requirements and internal growth through 1999.
However, there can be no assurance that the Company's cash resources following
this Offering will be sufficient to fund the Company's negative cash flow and
expected capital expenditures for this period. The Company, therefore, may need
to obtain additional equity or debt financing in the future. There can be no
assurance that the Company will be able to obtain the additional financing to
satisfy its cash requirements on acceptable terms or at all.

24
<PAGE>
BUSINESS

THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
DISCUSSED IN THIS PROSPECTUS. FACTORS THAT MAY CAUSE OR CONTRIBUTE TO SUCH A
DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS,"
AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS.

OVERVIEW

The Company develops, markets and sells proven, neuroscience-based education
and training programs designed to increase human learning and performance. The
Company's initial product, Fast ForWord, is an intensive, computer-based
training program that focuses on improving critical pre-reading skills,
including receptive and expressive communication skills in children with
language-based learning problems. The program modifies and emphasizes
characteristics of speech and sound so that they can be more readily
differentiated and processed. Through thousands of repetitions, the program
enables children to master the essential building blocks, or phonemes, of the
English language and facilitates the learning of other critical language skills,
such as morphology (the system of word formation), syntax and grammar, and
executive function skills, such as short-term memory and event sequencing
capabilities. In addition, because the results from each child's Fast ForWord
exercises are compiled daily in a central database via the Internet, Fast
ForWord is able to automatically generate up-to-date performance charts and
templates, enabling the learning facilitator to monitor the child's progress on
a daily basis. Fast ForWord measures the child's response to each exercise and
continually adjusts and adapts the program to challenge each individual child
appropriately with customized training. Fast ForWord is designed to support
teachers, speech and language professionals, parents and other learning
facilitators in providing a program that can be integrated with school curricula
and other language programs to assist children in overcoming language-based
learning challenges and provide a foundation for language skills and academic
learning.

Based upon decades of independent neuroscience research on the brain's
ability to adapt to certain stimuli, Fast ForWord uses computer-controlled,
repetitive and adaptive training exercises to modify the manner in which the
brain processes language. The Fast ForWord program typically lasts from four to
eight weeks and consists of 100 minutes per day of training for five days per
week under the supervision of a teacher, speech and language professional,
parent or other learning facilitator trained in the use of the program. In
Company-sponsored field trials involving approximately 1,000 children with
language-based learning difficulties, participants on average achieved
improvement of more than 1.5 years in language processing and related skills
after completion of the Fast ForWord program. The Company believes that similar
improvements, if achievable at all through traditional remediation programs,
have typically required several years. In addition, Fast ForWord has
successfully produced broad results, with approximately 90% of all children
identified by standardized tests as having language-based learning problems,
making significant gains in critical language skills upon completion of Fast
ForWord training.

Fast ForWord is delivered through a variety of distribution channels,
including public schools, speech and language professionals in private practice
and Company-operated Learning Centers. The Company also provides seminars to
train and educate teachers, speech and language professionals, parents and other
learning facilitators in the use and applications of Fast ForWord. To date,
approximately 5,500 children have participated in the Fast ForWord program and
approximately 2,600 teachers and speech and language professionals have been
trained in administering the program.

BACKGROUND

25
<PAGE>
difficulties, most of which can be attributed to difficulty in acquiring,
retaining and manipulating phonemes. Furthermore, in reviewing studies of
children with serious reading difficulties, the National Institute of Child
Health and Human Development (the "NICHD") at the National Institutes of Health
(the "NIH") found substantial evidence that these reading difficulties result
from a child's "difficulty acquiring, retaining, manipulating and recoding the
phonemes or sounds of the English language." Children with such difficulties
often have other learning challenges such as autism and attention deficit
disorder ("ADD").

According to industry sources, approximately 20% of all children in the
United States between the ages of four and 13 have significant language-based
learning difficulties. Extrapolating from U.S. Department of Commerce, Bureau of
the Census data, this figure represents approximately 8,000,000 children between
the ages of four and 13. The Company believes that approximately 800,000
children in the United States enter this category each year and that their
language-based learning problems result in part from the inability to make
reliable distinctions among certain elements of speech. This inability
frequently leads to poor language comprehension, problems in speaking and
subsequent reading problems, and is often associated with low self-esteem, poor
academic performance and behavioral problems. The NICHD at the NIH suggests
that, without early identification and intervention, language-based learning
difficulties often hinder learning and reading into adulthood unless intensive
and specialized remediation programs are provided.

The Company estimates that there are approximately 100,000 speech and
language professionals practicing in the U.S., including approximately 13,000 in
private practice, 50,000 in public schools and 37,000 working part-time or in
adult rehabilitation centers. Traditional remediation programs for language-
based learning problems typically consist of years of weekly one-on-one or
small-group phonics and other language exercises with a private or school speech
and language professional or teacher. Oral phonics exercises in traditional
programs tend to focus on the relationship between sounds and letters. In
contrast, the Company believes that a child must first be able to differentiate
sounds or phonemes before the child can understand the relationship between
sounds and letters. Frequently, traditional programs include regular oral
repetition of phonemes by the speech and language professional. However, humans
cannot stretch and emphasize the acoustics of speech and sound over thousands of
repetitions with the precision of a computer to systematically modify neural
pathways for improved language processing. Additionally, because substantial
results can typically be measured only after several years in children with
identified language-based learning problems, decisions regarding whether a
particular course of traditional intervention is appropriate for an individual
child are often based on subjective evaluations and anecdotal evidence rather
than measurable results.

The Company was founded by scientists who had spent decades researching
neuroscience and the causes of language-based learning problems at UCSF and
Rutgers. As published in the peer-reviewed journal SCIENCE in January 1996, the
scientific founders of the Company demonstrated that children with an inability
to distinguish between phonemes could rapidly learn to identify these previously
indistinguishable speech sounds and correctly reconstruct speech if trained on a
computer-based program that modifies speech through the stretching and selective
amplification of sounds. Children who received this acoustically modified speech
training achieved significantly greater gains than those who received only
normal speech in a similar computer-based format and demonstrated measurable
improvement in areas such as the ability to process rapid auditory events,
phoneme and speech discrimination and language processing and comprehension. The
founders postulated that the children's newly learned ability to distinguish and
process sounds resulted from a behaviorally induced change in the organization
of neural pathways involved in the way their brains process language. This
scientific research demonstrated a practical application of the phenomenon known
as brain plasticity, which is the brain's ability to modify the way it processes
information in response to certain stimuli. The founders established the Company
to move this research as rapidly as possible from laboratories into products and
services designed to improve human learning and performance.

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MARKET OPPORTUNITY

In order to reach as many children with language-based learning problems as
possible, the Company intends to focus on schools with students in kindergarten
through high school ("K-12") in the United States. Based on information derived
from industry sources, the Company estimates that more than 51 million students
attended over 100,000 K-12 public and private schools in the United States in
the 1996-1997 school year. Public concern over the effectiveness of K-12 schools
in teaching essential academic skills and the rapidly growing role of technology
in the K-12 marketplace have created an increased demand for technology-based
educational programs. While total spending on education in the United States has
grown at an average of 5% per year, spending on technology in public schools in
the United States and Canada has more than doubled since 1992, growing to an
estimated $4.3 billion in the 1996-97 school year. Technology spending is
projected to reach $5.2 billion for the 1997-98 school year. Educators, parents
and opinion leaders in the United States are increasingly focused on improving
essential academic skills of all students and, in particular, their reading
proficiency. This focus has generally contributed to an increased demand for
more effective methods to increase academic performance, including the
performance of children with language-based learning difficulties. Schools have
responded to these demands by investing in computers, software and other
educational technology, testing and other assessment programs to measure
students' progress, and professional development training to enhance educators'
effectiveness in the classroom. Forty-seven states have adopted programs to
support the use of technology in the classroom, and federal funds have been made
available for technology purchases through multiple programs, including Title I
and E-Rate. The Company believes that the increasing commitment of educators and
parents to improve essential academic performance for all children in general
and for children with language-based learning problems in particular, combined
with increased demand for technology based programs, has created a significant
opportunity for providers of computer-based educational products and services
that provide measurable results.

THE SCIENTIFIC LEARNING SOLUTION

The Company's initial product, Fast ForWord, is a proprietary, adaptive
computer-based training program for children with language-based learning
problems. The Fast ForWord program is comprised of seven intensive, animated
computer exercises lasting 20 minutes each, which students are expected to
practice for 100 minutes a day, five days a week, for four to eight weeks. Each
exercise modifies the characteristics of speech and sound so they can be
differentiated and processed by the child. Fast ForWord measures the child's
responses during each exercise and continually adjusts and adapts the program to
challenge each individual child appropriately with customized training. As the
child progresses through the program, the child's brain gradually learns how to
process language at a faster rate until the child is eventually able to hear and
process naturally spoken language. The program also facilitates the learning of
other critical language skills such as morphology, syntax and grammar and
executive function skills such as short term memory and event sequencing
capabilities. The primary advantages of the Scientific Learning solution are as
follows:

RESEARCH-BASED PROGRAM. Fast ForWord is based on twenty-five years of
research in brain plasticity and the underlying causes of language-based
learning problems. As published in the peer-reviewed journal SCIENCE in January
1996, the scientific founders of the Company demonstrated that children with an
inability to distinguish between phonemes could rapidly learn to identify these
previously indistinguishable speech sounds and correctly reconstruct speech if
trained on a computer-based program that modifies speech through the stretching
and selective amplification of sounds. This patent-pending research is licensed
on an exclusive basis by the Company and serves as the basis of the Fast ForWord
program.

PROVEN, RAPID AND MEASURABLE RESULTS. The Company has conducted two field
trials to demonstrate the efficacy of the Fast ForWord program, which has now
been used by approximately 5,500 children. On average, children with language
problems have demonstrated 1.5 years of language performance improvement on
standardized tests after four to eight weeks of using Fast ForWord. Prior to the
introduction of

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Fast ForWord, such a level of improvement in children with identified
language-based learning problems, if possible, typically required several years
of traditional pre-reading remediation training. In addition, because the
results from each child's Fast ForWord exercises are compiled daily in a central
database via the Internet, Fast ForWord is able to automatically generate
up-to-date performance charts and templates, enabling the learning facilitator
to monitor the child's progress on a daily basis.

INTEGRATED APPROACH WITH LEARNING FACILITATORS. The Company works closely
with teachers, speech and language professionals, parents and other learning
facilitators to integrate Fast ForWord into a child's existing educational
program and to train learning facilitators in how to use Fast ForWord most
effectively. Through the Internet, Fast ForWord automatically provides learning
facilitators with performance tables and templates enabling them to establish a
baseline analysis and monitor the child's skill level on a daily basis.
Furthermore, by addressing the underlying deficits in a child's basic language
comprehension skills, the Company believes Fast ForWord enables the child to
better benefit from traditional remediation and prevention programs and allows
learning facilitators to focus on other learning challenges the child may have.

EFFECTIVE ALLOCATION OF RESOURCES. Fast ForWord helps children develop the
tools they need to learn and interact more effectively in most classroom
activities, not just language education, by improving their ability to process
language and follow oral instructions. The Company believes that by addressing
the underlying causes of language-based learning problems early, problems can be
identified and addressed at the pre-reading level. The Company further believes
that effective use of Fast ForWord in a school's curriculum decreases the number
of students who will subsequently need expensive remedial help, saving scarce
education resources which can be used for other education programs. Moreover, by
enabling teachers and speech and language professionals in public schools to
deliver individualized computer training simultaneously to multiple children,
rather than requiring one-on-one instruction, Fast ForWord enables schools to
more effectively utilize resources for remediation programs. In the private
sector, the Company believes that the use of Fast ForWord leverages the time
spent by a speech and language professional with a child, potentially resulting
in cost savings for the parent or freeing-up time or money which may then be
spent on addressing other challenges the child may have.

ENGAGING AND ADAPTIVE ANIMATION AND REWARD SYSTEM. Fast ForWord keeps
children entertained with animated characters and sound effects and has the look
and feel of a computer game. Each of the seven training exercises has a
different theme and different graphics for each level within the exercise.
Children receive on-screen animation segments as rewards for correct responses
throughout each training exercise. In addition, children collect points as they
progress through the exercises that, in some training settings, can be redeemed
for age-appropriate prizes. As the child uses the program, Fast ForWord
continually adjusts to the child's individual skill level and changes difficulty
so that, on average, the child is correct 80% of the time, which allows the
program to remain challenging and engaging while enabling the child to generate
a feeling of success and accomplishment.

GROWTH STRATEGY

EXPAND CHANNELS OF DISTRIBUTION. Although to date the substantial majority
of sales of the Fast ForWord program have been through speech and language
professionals in private practice, the Company has recently begun efforts to
significantly expand its channels of distribution. To substantially increase the
number of children with access to Fast ForWord, the Company intends to further
penetrate the over 100,000 schools in the K-12 market through an expanded direct
marketing program, pursuit of district level school contracts and an increase in
the number of schools acting as reference sites. The Company plans to

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continue to increase penetration of the private practice speech and language
professional market through the expansion of its direct marketing programs and
through its training seminars. The Company also intends to market directly to
parents by increasing media awareness of its products and by direct marketing
efforts from an expanded number of Learning Centers. Furthermore, the Company
intends to pursue additional channels of distribution, including the "at-home"
learning market, which can benefit from the Company's Internet-based system of
distribution and monitoring, as well as possible alliances with others in the
after-school education and training markets.

RAPIDLY EXPAND SALES AND MARKETING EFFORTS. The Company intends to rapidly
expand its sales and marketing efforts to increase its penetration of the
school, private practice speech and language professional, Learning Center and
"at-home" learning markets. Specifically, the Company intends to: (i) hire
additional salespeople to focus exclusively on sales to the K-12 school market;
(ii) hire additional salespeople to target speech and language professionals in
private practice; (iii) pursue media coverage and publication in scientific
journals; (iv) expand support of the marketing efforts of speech and language
professionals in private practice; and (v) participate in a greater number of
trade shows and conferences.

DEVELOP ADDITIONAL NEUROSCIENCE-BASED LEARNING PRODUCTS. The Company
intends to develop and introduce new products based on practical applications of
brain plasticity research. The Company is currently field testing a beta version
of Fast ForWord II for children who have completed Fast ForWord and are ready
for a program that focuses on more advanced pre-reading skills. The Company is
also developing other language-based products, including an ESL program for
foreign students and for adults, an adult version of Fast ForWord and an
assessment or screening test for language-based learning problems. In addition,
the Company is evaluating foreign language versions of Fast ForWord and a
program to assist stroke victims in reacquiring language skills. The Company
also is examining ways to leverage its expertise in brain plasticity research in
potential non-language-based products. The Company believes its expertise in
neuroscience and computer technology and its commitment to field testing
products to demonstrate their measurable results, position it well for the
successful introduction of new products.

BUILD A TRUSTED BRAND. The Company intends to invest in the Scientific
Learning Corporation and Fast ForWord names to increase brand awareness and
loyalty. The Company believes that establishing a trusted brand is critical to
success in the education and training markets. Specifically, the Company intends
to: (i) continue to build recognition of the Fast ForWord brand among learning
facilitators and leverage such recognition to build brand awareness of the
Company and future products such as Fast ForWord II; (ii) communicate the
Company's commitment to proven research and the commercialization of products
with measurable results; (iii) publish field test results; (iv) promote the
publication of media articles and stories regarding the Company and its
products; (v) encourage community-building through support efforts such as the
Company's Web site and chat rooms; and (vi) engage in direct marketing campaigns
to educators and other key public school decision-makers as well as to speech
and language professionals and parents. The Company believes it has already
established itself as a pioneer and leader in the commercialization of
neuroscience research applications.

PROGRAMS AND SERVICES

BACKGROUND. Children must be able to recognize and process the phonemes
relevant to their language before they can become skilled in the understanding
and use of language and in reading. For example, in order for children to
understand or speak the word "dog," they must first recognize the three phonemes
"duh," "ah" and "guh." To read the word "dog," children must also associate such
phonemes with the three letters "d," "o" and "g." Scientific founders of the
Company working at Rutgers noted that children with language-based learning
problems often have difficulty distinguishing between closely related phonemes,
such as "bah" and "dah." With these particular phonemes, the "b" and "d" sounds
are succeeded by the identical "ah" sound after approximately 40 milliseconds.
Spoken language is made up of

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numerous, frequent and rapid sound transitions such as this.
Independently-conducted longitudinal research has found that children who have
difficulty distinguishing among related phonemes have problems understanding and
using language. The NICHD at the NIH has found that there is a strong
correlation between these language-based learning problems and difficulties in
learning to read.

The scientific founders of the Company working at UCSF noted that the human
brain changes in response to stimuli, a trait known as brain plasticity. Their
work demonstrated that specific adaptive training techniques drive the brain to
change over time, adjusting how it processes information and thereby permitting
more rapid learning.

Bringing together their work at Rutgers and UCSF, the scientific founders
discovered that with the help of computers, the rapid acoustic changes within
speech sounds could be slowed, emphasized and then differentiated by children
with language-based learning problems. Through thousands of repetitions of
individualized exercises focused on important aspects of speech and language,
these children could gradually master natural speech sounds and develop other
critical language and executive skills. The scientists postulated that the
children's newly learned ability to distinguish and process sounds resulted from
a fundamental change in the organization of neural pathways involved in the way
their brains process language.

THE FAST FORWORD PROGRAM. Fast ForWord is an intensive, computer-based
training program, which has the look and feel of a computer game and is
comprised of seven training exercises--three exercises for sounds and four for
words. In the three sound exercises, complex auditory information is presented
in a variety of pre-word formats using different frequencies, time durations and
phonemes. The four word exercises consist of words presented either in isolation
or within sentences with various levels of linguistic complexity. The words and
sentences used in these exercises have been electronically modified to expand
and enhance the rapidly changing phonetic elements within natural speech. As a
child's skill level advances, the exercises become increasingly more difficult,
driving him or her continually to increase his or her rate of speech processing,
which in turn leads to more normal speech perception. At the highest level of
each exercise, the child is presented with natural, unmodified speech.
Throughout each training exercise, the program adjusts to the child's individual
skill level so that the child is making correct responses approximately 80% of
the time. This adjustment is designed to keep the program challenging and
engaging for the child, while allowing the child to generate a feeling of
success and accomplishment and avoid repetitive failure, which can be
discouraging and detrimental to learning.

Fast ForWord is designed to keep children engaged and entertained with
animated characters and sound effects, and its game-like format provides the
thousands of repetitions necessary to improve a child's language skills. Each of
the seven exercises has a different theme and different graphics for each level
within the exercise. Children receive on-screen animation segments as rewards
for correct responses throughout each 20-minute training exercise. In addition,
children collect points as they progress through the exercises that, in certain
training settings, can be redeemed for age-appropriate prizes ranging from small
toys to video game cartridges. The Fast ForWord program is designed to be used
for 100 minutes per day, five days a week for four to eight weeks. Extensive
pilot and field testing of Fast ForWord has shown that students with
language-based learning problems experience language gains of 1.5 years on
average upon completion of this intensive program. Additionally, based on
extensive interviews with parents and teachers, children who have completed the
Fast ForWord program are generally reported to have shown substantial
improvements in both self-esteem and behavior as their communication skills
improve.

Results from each child's Fast ForWord exercises are uploaded daily via the
Internet to the Company's proprietary database for analysis and comparison with
the child's progress to date. The Fast ForWord program automatically creates
performance charts and templates in various discrete learning areas which can be
downloaded through the Internet by learning facilitators, enabling them to
monitor the performance of the one or many children under their supervision over
the course of the training program. These

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charts and templates can also be used by the facilitator to provide parents and
children with measurable results of the child's progress.

Fast ForWord is designed to be a separate supplemental course of training
that complements a child's regular learning schedule. The program is suitable
for schools, clinics, learning centers, and private or group training with
speech and language professionals. In each case, a Fast ForWord-trained teacher,
speech and language professional or other learning facilitator introduces Fast
ForWord to the child, initiates the training program, monitors and analyzes each
child's progress and helps to ensure successful completion of the program. After
such introduction, parents can also elect to administer the Fast ForWord program
at home.

SEMINARS. To assist teachers, speech and language professionals, parents
and other learning facilitators, the Company provides educational seminars on
language-based learning problems and training seminars in the administration of
the Fast ForWord program. Such workshops range from free two- to three-hour
educational seminars for parents to one- or two-day intensive training seminars
for teachers and speech and language professionals. The training seminars
generally include: (i) an overview of the research behind the development of
Fast ForWord; (ii) a presentation of the clinical results achieved through Fast
ForWord; (iii) hands-on training using CD-ROM and Internet components of the
Fast ForWord program; (iv) case studies and recommended practices for selecting
appropriate candidates for Fast ForWord training; and (v) tips for incorporating
Fast ForWord into the professional's practice or the teacher's school
curriculum. Through these seminars, approximately 2,600 teachers and speech and
language professionals have been trained in administering Fast ForWord. To date,
the Company has scheduled six two-day training seminars in various locations
throughout the country for 1998 and plans to schedule additional seminars. In
addition, the Company is planning to develop a remote training course that can
be delivered by video, CD-ROM and/or the Internet.

PROFESSIONAL AND PARENTAL SUPPORT. In addition to its educational and
training seminars, the Company provides a number of other support mechanisms for
parents and other learning facilitators involved in addressing language-based
learning problems. The Company believes that, through these forums, it has begun
to create a virtual community among parents and other learning facilitators. For
example, the Company provides an interactive World Wide Web site for children
using Fast ForWord and their families to access program information and research
on language-based learning problems. Chat rooms for parents and downloadable
graphics and software for children are also available. The Company also mails to
the parents of participating children, as well as to schools and speech and
language professionals, a Fast ForWord newsletter that contains items of
interest on the program and language-based learning problems. The Company has a
professional relations staff dedicated to answering questions from and providing
support to professional providers and parents interested in the Fast ForWord
program, and has a toll-free telephone information line.

TECHNICAL SUPPORT. Because many of the teachers, speech and language
professionals, parents and other learning facilitators who administer the Fast
ForWord program have limited computer knowledge and do not have any technical
support on-site to assist them, the Company provides a variety of technical
support services. The Company employs an experienced staff of technical service
representatives who are capable of answering technical questions regarding Fast
ForWord, regardless of platform, as well as questions regarding hardware and
networks. In addition, in connection with use of the Fast ForWord program in
public schools, the Company provides on-site technical training, computer and
software installation, technical support and assistance with integrating the
Fast ForWord program into existing school curricula.

SALES AND MARKETING

The Company intends to invest in the Scientific Learning Corporation and
Fast ForWord names to increase brand awareness and loyalty. The Company believes
that establishing a trusted brand is critical to

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success in the education and training markets. Specifically, the Company intends
to: (i) continue to build recognition of the Fast ForWord brand among learning
facilitators and leverage such recognition to build brand awareness of the
Company and future products such as Fast ForWord II; (ii) communicate the
Company's commitment to proven research and the commercialization of products
with measurable results; (iii) publish field test results; (iv) promote the
publication of media articles and stories regarding the Company and its
products; (v) encourage community-building through support efforts such as the
Company's Web site and chat rooms; and (vi) engage in direct marketing campaigns
to educators and other key public school decision-makers as well as to speech
and language professionals and parents. The Company believes it has already
established itself as a pioneer and leader in the commercialization of
neuroscience research applications.

The Company markets and sells Fast ForWord through three primary channels of
distribution: public schools, speech and language professionals in private
practice and the Company's Learning Centers. The Company also intends to pursue
additional channels of distribution, including the "at-home" learning market
which can benefit from the Company's Internet-based system of distribution and
monitoring, as well as possible alliances with others in the after-school
education and training markets.

PUBLIC SCHOOLS. To more rapidly introduce Fast ForWord into public schools,
the Company has undertaken a reference site program, in which certain schools
agree to provide reference services for Fast ForWord in exchange for a program
discount. Such services include acting as a reference for other educators
interested in Fast ForWord, hosting tours, speaking at events and with the press
about program results, participating in studies and cooperating in the
publication of results. These sites provide educators and administrators with
the opportunity to see Fast ForWord in use, which the Company believes helps
shorten the sales cycle in schools. As of May 31, 1998, the Company had
established three school reference sites. The Company initiated its marketing to
public schools in late 1997 with a pilot program involving 19 schools in nine
school districts in five states. Fast ForWord is sold directly to public schools
and districts at $850 per child except where the Company has negotiated
reference site or volume discounts in connection with large sales. To date the
Company has trained more than 600 teachers and speech and language professionals
in public schools in the administration of Fast ForWord. The Company plans to
expand its sales and marketing for schools as well as related training seminars.
In addition, the Company is exploring relationships with independent sales
representatives and with other companies that have existing sales relationships
with schools to augment the efforts of the Company's in-house sales team. While
the Company maintains a database of K-12 public schools, to date the majority of
leads have arisen from key educators and other decision-makers within schools
and districts contacting the Company after learning of Fast ForWord from
publications in journals or the general press, presentations at education
conferences, attendance at Company training seminars or from colleagues or
parents.

SPEECH AND LANGUAGE PROFESSIONALS. The Company intends to continue to
expand its marketing of Fast ForWord to speech and language professionals
operating in private practice, private schools and hospitals and clinics. To
administer Fast ForWord, the Company currently requires that a speech and
language professional attend a Company training seminar, which to date have been
held in more than 20 cities across the United States. The Company has trained
more than 1,900 speech and language professionals in private practice in how to
administer Fast ForWord. Such seminars currently involve one or two days of
training and cost $995 per person for a Company-sponsored two-day workshop. Fast
ForWord-trained speech and language professionals in private practice recommend
the use of Fast ForWord to parents in appropriate cases and then administer the
program in connection with providing traditional services. In such instances,
Fast ForWord is typically sold directly to parents for $850 per child,
minimizing the administrative burden on the speech and language professional,
who charges separately for time spent supervising the child. The fees charged by
the speech and language professional generally range from $2,000 to $5,000 per
child. Fast ForWord could be used as supplemental to, or potentially as a
partial replacement of, traditional private pre-reading remediation programs,
which the Company estimates typically cost between $15,000 and $20,000. The
Company has been a pioneer in marketing computer-

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based training programs to speech and language professionals and has developed a
proprietary database of information regarding thousands of speech and language
professionals. Speech and language professionals are contacted by the Company
through telesales and other direct marketing efforts, which encourage them to
attend Company seminars and use the Fast ForWord program in their practices. In
addition, speech and language professionals learn of the Fast ForWord program
through the Company's participation in trade conferences, publications in
journals and the general press, and the distribution of the Company's
informational videos and practice kits.

LEARNING CENTERS. The Company markets directly to parents through its
Learning Centers, which are intended to provide a supportive, encouraging
environment for a child to participate in the Fast ForWord program, while
providing support and training for the parent. The Company operated three Fast
ForWord Learning Centers as of May 31, 1998 and intends to open more centers
during summer 1998, expanding the Company's Learning Centers into a total of
five states. Most of the centers opened during summer 1998 are or will be
located at private schools. Some of the centers located in private schools are
expected to operate only in the summer months, while others may operate
year-round by offering after-school training, although to date the Company has
no contracts extending these centers beyond the summer months. The Company
provides monitoring, supervision and weekly parental consultations in connection
with delivery of the Fast ForWord program at the Learning Centers. For an
additional fee, parents can also elect to have a state-certified speech and
language professional test and evaluate their child's language skills. Through
the Fast ForWord Learning Centers, the Company also offers Fast ForWord At Home
for parents who wish to administer the program at home under the close
supervision of the Center. Fast ForWord At Home is particularly useful for
parents and children who have scheduling conflicts or who live too far away to
attend daily training sessions at a Learning Center. Fast ForWord training at or
through a Learning Center typically costs between $2,000 and $3,000, including
program fees, consultation fees and monitoring fees, as applicable. The Company
promotes parental awareness of the Learning Centers and the Fast ForWord program
through direct mail, parent educational seminars, referrals from schools, speech
and language professionals and others, local advertising, stories in the local
press, distribution of a video for parents and other direct marketing efforts.

OTHER CHANNELS OF DISTRIBUTION. The Company is exploring and developing
other channels of distribution. Currently, parents calling the Company to
inquire about the availability of Fast ForWord are referred to a local Fast
ForWord-trained speech and language professional in private practice or to a
Learning Center, if locally available. However, parents are often located in
areas in which there is no easy access to a trained speech and language
professional or Learning Center. As a result, the Company is developing a remote
or "at-home" course that can be delivered by video, CD-ROM and/or the Internet
for the training of parents in the supervision and administration of Fast
ForWord. In addition, the Company is exploring possible alliances with other
organizations involved in the after-school education and summer education and
training markets.

The Company's future success is, in part, dependent on acceptance of Fast
ForWord by public schools, administrators, teachers, speech and language
professionals, parents and other learning facilitators and on penetration of the
public school, speech and language professional and parental markets. There can
be no assurance that the Company will be successful in developing and
penetrating these markets. See "Risk Factors--Uncertainty of Market Acceptance,"
"--Challenges to Market Penetration" and "--Lengthy Sales Cycle."

RESEARCH AND DEVELOPMENT

Approximately one third of the Company's employees are engaged in research
and development activities, which include both product development and outcomes
research. The Company's research and development organization includes
neuroscientists, psychologists, engineers, programmers, statisticians, graphic
artists and animators. The Company believes that its future success depends in
large part on its ability to develop new products and maintain and enhance its
current product line, and on its ability to

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enhance its market positioning by leveraging the Company's expertise in
neuroscience and computer technology, which the Company believes have broad
applicability. Accordingly, the Company plans to expand its research and
development activities with respect to present and future products based on
brain plasticity. In order to enhance its Fast ForWord program, the Company is
conducting longitudinal studies, as well as studies focusing on whether the
program can be broken into smaller modules to more easily integrate Fast ForWord
into school curricula. The Company is also currently testing a beta version of
Fast ForWord II for children who have completed Fast ForWord and are ready for a
program that focuses on more advanced pre-reading skills. The Company is also
developing other language-based products, including an ESL program for foreign
students and for adults, an adult version of Fast ForWord and an assessment or
screening test for language-based learning problems. In addition, the Company is
evaluating foreign language versions of Fast ForWord and a program to assist
stroke victims in reacquiring language skills. The Company also is examining
ways to leverage its expertise in brain-plasticity research in other potential
non-language-based products, including computer-based remediation programs for
repetitive stress injury and tinnitus (ringing in the ears).

Once new or improved products are identified and developed through the
Company's research and development process, the Company's outcomes specialists
test the efficacy of such products in extensive field trials. To promote its
goal of commercializing scientifically based and proven products, the Company
intends to release products only after demonstrating measurable results.

There can be no assurance that: (i) the Company will be successful in
developing and marketing new products or responding to technological
developments, evolving industry standards or changing customer requirements;
(ii) the Company will not experience difficulties that could delay or prevent
the successful development, introduction and sale of such new products; or (iii)
any new products will adequately meet the requirements of the marketplace and
achieve any significant degree of market acceptance. If release dates of any new
products are delayed or if these products fail to achieve market acceptance when
released, the Company's business, operating results and financial condition
could be materially and adversely affected. See "Risk Factors--Dependence on
Continued Product Development."

EFFICACY STUDIES

The Company was founded by scientists who have spent decades researching
neuroscience and the causes of language-based learning problems at UCSF and
Rutgers. The original research studies combining the work of the Company's
founders were funded by UCSF and Rutgers and certain results were published in
the peer-reviewed scientific journals, SCIENCE and NATURE. The primary study
included 22 children with language-based learning problems who played
computerized versions of games such as "Simon Says" for 50 hours over a 20-day
period. The experimental group received commands in slowed, stretched and
emphasized speech while the control group received normal speech. Additionally,
the experimental group's exercises adapted to their individual skill level. The
results of these studies were widely noted because the children in the
experimental group showed significant gains of 1.5 years in critical language
skills in just four weeks through the use of the computer-based language
training program that became the basis for Fast ForWord. Six-month follow-up
studies demonstrated that the language skills of these children continued to
improve after the completion of the four-week training period. Children randomly
assigned to the control group did not demonstrate comparable gains.

The Company has funded two additional large-scale trials. The first study,
conducted in 1996, included approximately 500 children between the ages of four
and 14 trained in private clinics and schools across the country and was
designed to test the effectiveness of the Fast ForWord training program in a
variety of settings. Each of the 60 professionals in the 35 locations was an
independent collaborator who agreed to follow the protocols mandated by the
Company and supply pre- and post-assessment testing data on each child. Most of
these children were already identified as needing specific help in language
skills and were involved in remediation programs through regular sessions with a
speech and language professional in private practice or at a school. As part of
the study, the children were administered standardized tests prior

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to and following the use of the Fast ForWord program for 100 minutes a day, five
days a week for four to eight weeks. On average, regardless of age or grade,
children involved in the study demonstrated gains of 1.5 years.

As part of the 1996 field trial, certain Tests of Language Development
("TOLD") were administered by independent speech and language professionals to
196 participating children, both prior to beginning and upon completion of the
Fast ForWord program. These industry-accepted and normed tests, the TOLD-I:2 and
TOLD-P:2, are individually administered comprehensive language tests that assess
various aspects of language performance including semantics, syntax, morphology,
phonology and listening comprehension. Prior to participation in the Fast
ForWord program, only 19% of the children scored at or above the population
mean, as evidenced below by the standard bell curve superimposed on the test
results. After completion of the Fast ForWord program, 52% of the children
scored at or above the population mean.

[Side by side graphs subtitled "Before Fast ForWord" and "After Fast
ForWord," respectively, showing test scores of 196 children on certain tests of
language development before and after such children used Fast ForWord,
superimposed on bell curves representing the normal distribution of scores on
such tests. The graphs, together, are titled "Test Results" and are accompanied
by the following text footnotes: "(1) Represents the results from the TOLD-I:2
and -P:2. The changes in test results reflected in the above histograms are
statistically significant and highly reliable (t(195)=18.21,p < .0001);" and
"(2) The test results represent an age-corrected distribution of language
performance (measured in Z-socres) where the population average (50th
percentile) is zero (as indicated in the histograms above) and the standard
deviation is one. Prior to the beginning of Fast ForWord training, the tested
group achieved an average score of -1.0 Z-scores (standard deviation of 0.9)
which approximates the 16th percentile of performance for this test within the
general population. After completion of the Fast ForWord program, the tested
group achieved an average score of -0.2 Z-score (standard deviation of 1.0)
which approximates the 42nd percentile of performance for this test within the
general population. The Z-score is a linear transformation that converts a set
of score into a set of standard scores with a mean of zero and a standard
deviation of one allowing direct comparison to the standard normal distribution
referred to as the table of the normal curve."]

The second large-scale study, in the fall of 1997, included approximately
500 children in 19 public schools in nine public school districts in five states
across the country and was designed to test Fast ForWord efficacy with a new
population of children, namely children who were observed by teachers as likely
to be at risk for later academic failure. The children were selected for
participation in the study by their teachers. Most of these children had not
been identified as needing specific help in language skills, nor had they been
assigned to special education classes or other remediation programs outside the
classroom. As part of this study, some of the children were randomly assigned to
a control group which did not receive Fast ForWord training but instead received
traditional remediation training for the same amount of time. The children
trained for 100 minutes a day, five days a week for four to eight weeks. Again,
a substantial majority of the children using Fast ForWord demonstrated similar
gains to those made in earlier studies, making achievements significantly beyond
those made by the control group. Similar results have also been observed in the
overall group of children who have used the Fast ForWord program commercially.

COMPUTER TECHNOLOGY

Fast ForWord can be used on either a Windows PC or on an Apple MacIntosh
platform. Fast ForWord is currently supported on a variety of computer
configurations, including an on-site model where learning facilitators supervise
children that train on computers within their offices, an off-site model where
learning facilitators remotely supervise children that train on computers within
their own homes and a client/server model. With the client/server model, which
can support many children simultaneously, a child

35
<PAGE>
does not need to use the same computer for each training session, but can
instead use any computer available which is linked to the network.

The Fast ForWord back-end system is designed to be modular, reliable and
easily scaleable. Centered around the Internet, the back-end system consists of
training computers, data viewing/monitoring computers and the Company's
databases. The Fast ForWord databases are tightly integrated with all Company
databases to provide seamless service from professional support, technical
support and accounting.

This integration allows learning facilitators to use a Web browser to do
most of the necessary monitoring of the children training under their
supervision. After children at a site complete their training for the day, the
learning facilitator uploads all of their data to the Company databases. During
this transaction, the status of each child is updated. This interaction enables
the Company to gather the data that provides the basis of its Internet-delivered
performance reports. Because such uploaded data are then accessed by the
learning facilitator over the Internet and processed primarily on the learning
facilitator's computer, the learning facilitator can monitor and review a
child's progress from virtually anywhere, providing maximum scheduling
flexibility. If data are not uploaded to the Company within the required number
of days, the license key to the program is turned off until contact is made. The
Company is able to protect against unauthorized use because the program cannot
be activated without a license key delivered through the Internet. See "Risk
Factors--Adoption of Internet Solutions."

INTELLECTUAL PROPERTY

The Company's policy is to aggressively protect its proprietary rights in
its products and technology though a combination of patents, trademarks,
copyrights, trade secret laws, confidentiality procedures and contractual
provisions. The Company has filed patent applications in the United States and
internationally relating to its technology, including 22 with the USPTO.
Additionally, pursuant to the University License, the Company is the exclusive
licensee of the technology owned by UCSF and Rutgers with respect to the basic
speech and sound modification algorithms used in Fast ForWord. The licensed
technology is the subject of a pending patent application. There can be no
assurance that any of the Company's or its licensor's pending patent
applications will result in the issuance of any patents, or that, if issued, any
such patents will offer protection against competitors with similar technology.
There can be no assurance that any patents issued to the Company or its
licensors will not be challenged, invalidated or circumvented in the future or
that the rights created thereunder will provide a competitive advantage. In
addition, there can be no assurance that competitors, many of whom have
substantially greater resources than the Company and have made substantial
investments in competing technologies, will not seek to apply for and obtain
patents covering technologies that are more effective than the Company's
technologies, that would render the Company's technologies or products obsolete
or uncompetitive or that would prevent, limit or interfere with the Company's
ability to make, use or sell its products either in the United States or in
international markets.

Pursuant to the terms of the University License, the Company must pay UCSF
certain royalties and milestone payments based upon cumulative net sales of the
Company's products. In connection with entering into the University License, the
Company issued 171,788 shares of Series A Preferred Stock to Rutgers and made
other up-front payments. Unless otherwise terminated by operation of law or acts
of the

36
<PAGE>
parties, the University License remains in effect until the later of the
expiration of the last-to-expire patent licensed thereunder or the abandonment
of the last patent application licensed thereunder. The Regents may terminate
the University License if the Company violates its terms and fails to cure such
violation within 60 days of the Regents' written notice thereof. The Company may
terminate the University License at any time by giving written notice of its
intent to do so, and the termination will take effect 60 days from the effective
date of such notice. The loss or inability to maintain the University License
could delay the Company's introduction of new products or cause the recall of
products from the market, which would have a material adverse effect on the
Company's business, financial condition and results of operations. In such
event, even if the Company could identify and license technology equivalent to
the technology covered by the University License, development and integration of
such alternative technology would be likely to delay the Company's product line,
which would have a material adverse effect on the Company's business, financial
condition and results of operations.

COMPETITION

The educational technology market in which the Company operates is very
competitive. The Company believes that the principal competitive factors in the
industry are efficacy, ability to deliver measurable results, cost, efficiency
of delivery, ability to provide training to learning facilitators and ability to
complement and supplement public school curriculum. The Company believes that it
competes favorably on the basis of these factors. The Company competes primarily
against providers of traditional methods of remediation for language-based
learning problems, which typically require several years of one-on-one training
in children with identified language-based learning problems. Although the
traditional approach to language-based learning problems is fundamentally
different from the approach taken by the Company, such programs are more widely
known and accepted and, therefore, represent significant competition. In
addition, the Company competes to some extent with other companies offering
educational software products to schools and speech and language professionals
in private practice and with other operators of learning centers. Existing
competitors may continue to broaden their product lines, and potential
competitors, including large software developers and educational publishers, may
enter or increase their focus on the school market, resulting in greater
competition for the Company. Moreover, the Company expects that it will face
additional competition from new entrants into the market. Many competitors have
substantially greater technical, marketing and distribution resources than the
Company. There can be no assurance that the Company will continue to be able to
market its products successfully or compete effectively in the educational
technology market. See "Risk Factors--Competition."

EMPLOYEES

As of May 31, 1998, the Company had 82 full-time and 17 part-time employees.
The Company believes its relations with employees are good. None of the
Company's employees is represented by a union or subject to collective
bargaining agreements. See "Risk Factors--Dependence on Key Personnel."

PROPERTIES

The Company leases a 34,257 square-foot facility in Berkeley, California
under a five-year lease that expires in September 2002. The Company also leases
a 772 square-foot facility in Bellevue, Washington for a Fast ForWord Learning
Center, which lease expires in July 1999. The Company has short-term

37
<PAGE>
arrangements with seven private schools and one commercial facility for
additional Fast ForWord Learning Centers. The Company believes its facilities
are adequate for its current operations.

38
<PAGE>
MANAGEMENT

DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES

The following table sets forth certain information concerning the Company's
directors, executive officers and certain key employees as of June 10, 1998:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Sheryle J. Bolton.................................... 51 President, Chief Executive Officer and Member of the
Board of Directors
Dr. Michael M. Merzenich............................. 57 Chief Scientific Officer and Member of the Board of
Directors
Dr. Paula A. Tallal.................................. 51 Executive Vice President and Chairman of the Board of
Directors
Frank M. Mattson..................................... 43 Chief Financial Officer, Vice President, Finance, and
Secretary
Dr. William M. Jenkins............................... 47 Vice President, Product Development
Dr. Steven L. Miller................................. 34 Vice President, Outcomes Research
Dr. Bret E. Peterson................................. 35 Vice President, Internet and Database Systems
Diane H. Church...................................... 51 Vice President, Professional Relations
Rebel I. J. Rice..................................... 40 Vice President, Marketing
Kang S. Lim.......................................... 42 Vice President, Intellectual Property
Katherine M. Allen................................... 46 Director, Public School Teacher Training and
Marketing
Dr. Kathleen M. Hocker............................... 57 Director, Public School Sales
James A. Mills....................................... 42 Director, Business Development
Carleton A. Holstrom (1)(2).......................... 62 Member of the Board of Directors
Rodman W. Moorhead, III (1).......................... 54 Member of the Board of Directors
Dr. Leonard S. Schleifer (1)......................... 45 Member of the Board of Directors
James E. Thomas (2).................................. 38 Member of the Board of Directors
</TABLE>

- --------------------------

(1) Member of the Compensation Committee.

(2) Member of the Audit Committee.

SHERYLE J. BOLTON has served as Chief Executive Officer and a member of the
Board of Directors of the Company since November 1996. Ms. Bolton has also
served as President since June 1997. From January 1994 to July 1995, Ms. Bolton
served as President and Chief Operating Officer of Physicians' Online, Inc., a
physicians' online service provider. From June 1993 to December 1994 and from
September 1995 to October 1996, Ms. Bolton consulted for a number of
international companies, including many in the health care and technology
sectors, specifically in the areas of strategy, operations and finance. Ms.
Bolton's experience also includes senior management positions at Rockefeller &
Co., Inc., a global investment management firm, and Merrill Lynch Capital
Markets, Investment Banking Division. Earlier in her career, she was a teacher
of English as a second language in Africa and a language arts teacher in public
schools in the State of Georgia. Ms. Bolton is a director or trustee of several
mutual funds of Scudder Kemper Investments, Inc., and a director of LotsOff
Corporation, a public company that operates retail stores and sells consumer
goods in the southwestern United States. Ms. Bolton holds a B.A. in English and
an M.A. in Linguistics from the University of Georgia, and an M.B.A. from
Harvard Business School.

DR. MICHAEL M. MERZENICH is a founder of the Company. He has served as its
Chief Scientific Officer since November 1996 and as a member of the Board of
Directors since the Company's inception. From January 1996 to November 1996, Dr.
Merzenich served as the Chief Executive Officer and President of the Company.
During 1997, Dr. Merzenich worked full-time at the Company during a sabbatical
from his

39
<PAGE>
faculty position at UCSF. In 1998, Dr. Merzenich returned to his faculty
position at UCSF, but pursuant to a consulting agreement with the Company
devotes 20 percent of his professional time on consulting activities for the
Company. Since 1971, Dr. Merzenich has been a member of the faculty, and since
1980 a full professor, in Neuroscience, Physiology, Biomedical Engineering and
Otolaryngology at UCSF. He is currently the Francis A. Sooy Professor of
Otolaryngology at UCSF. Dr. Merzenich has more than 25 years of experience in
managing large, multidisciplinary brain science/behavior/engineering research
projects that have led to commercial products and numerous publications and
awards. Dr. Merzenich holds a B.S. in General Science from the University of
Portland and a Ph.D. in Physiology from The Johns Hopkins University, with
additional training from the University of Wisconsin.

DR. PAULA A. TALLAL is a founder of the Company. She has served as its
Executive Vice President and Chairman of the Board of Directors since January
1996 and as a director since the Company's inception. During 1997, Dr. Tallal
worked full-time at the Company during a sabbatical from her faculty position at
Rutgers. In 1998, Dr. Tallal returned to her faculty position at Rutgers, but
pursuant to a consulting agreement with the Company devotes an average of one
day per week on consulting activities for the Company. Since 1988, Dr. Tallal
has served as co-director of the Center for Molecular and Behavioral
Neuroscience at Rutgers. Dr. Tallal is an active participant in many scientific
advisory boards and governmental committees for both developmental language
disorders and learning disabilities. Dr. Tallal holds a B.A. in Art History from
New York University and a Ph.D. in Experimental Psychology from Cambridge
University with additional training from The Johns Hopkins University.

FRANK M. MATTSON has served as the Company's Chief Financial Officer and
Vice President, Finance since January 1997. He has served as Secretary of the
Company since June 1997. From August 1994 to January 1997, Mr. Mattson served as
Vice President of Finance and Operations, Executive Vice President, Chief
Financial Officer and as a director of MNI Interactive, Inc., a startup
entertainment marketing company. From June 1992 to August 1994, Mr. Mattson was
Vice President of Distribution and Strategic Planning for Ingram Entertainment,
Inc. ("Ingram"), a unit of the Ingram Distribution Group, one of the world's
largest distribution companies. At Ingram, Mr. Mattson directed the post-merger
integration of Ingram and Commtron Corporation ("Commtron"), the largest
distributor in the home video industry until its acquisition by Ingram in 1992.
From 1986 to 1992, Mr. Mattson served in a variety of management positions at
Commtron, a publicly traded company, most recently as Vice President of
Operations and as a director of the company. Mr. Mattson holds a B.S. in
Business from Miami University (Ohio) and an M.A. in Economics from the
University of Wisconsin in Milwaukee. Mr. Mattson has also served on the faculty
of Drake University.

DR. WILLIAM M. JENKINS is a founder of the Company and has served as the
Company's Vice President, Product Development since June 1997. From March 1996
to June 1997, Mr. Jenkins served as Vice President, Research and Development.
Since 1990, Dr. Jenkins has also served as an Adjunct Associate Professor at
UCSF. Dr. Jenkins currently serves on the editorial board in the Systems
Plasticity section of RESTORATIVE NEUROLOGY AND NEUROSCIENCE. Dr. Jenkins is the
principal developer of the Company's current training activities. Dr. Jenkins
holds a B.S. in Psychology, an M.A. in Psychobiology and a Ph.D. in
Psychobiology from Florida State University, with additional post-doctoral
training from UCSF.

DR. STEVEN L. MILLER is a founder of the Company and has served as the
Company's Vice President, Outcomes Research since June 1997. From May 1996 to
June 1997, Dr. Miller served as Vice President, Professional Relations and
Outcomes. From September 1991 to May 1996, he held research appointments at the
Center for Molecular and Behavioral Neuroscience at Rutgers. Dr. Miller has
extensive experience in organizing clinical research studies and conducting
longitudinal studies of children and adults who have language and reading
impairments. Dr. Miller holds a B.A. in Psychology from Bloomsburg University of
Pennsylvania, an M.A. in Neuroscience from the University of Hartford and a
Ph.D. in Psychology from the University of North Carolina at Greensboro. He
received additional training in Clinical Neuropsychology at the Bowman Gray
School of Medicine at Wake Forest University.

40
<PAGE>
DR. BRET E. PETERSON has served as the Company's Vice President, Internet
and Database Systems since June 1997. He has worked for the Company since June
1996. From January 1995 to March 1996, Dr. Peterson served as a Research
Scientist at Yale University. From January 1994 to December 1995, he was a
post-doctoral fellow at Los Alamos National Laboratory. From September 1993 to
November 1993, Dr. Peterson provided consulting services to Bio-Rad
Laboratories, Inc. From April 1986 to August 1987 he worked as an engineer at
Apple Computer, Inc. Dr. Peterson holds an A.B. in Computer Science from the
University of California at Berkeley, and an M.S. and Ph.D. in Bioengineering
from a joint program with the University of California at Berkeley and UCSF.

DIANE H. CHURCH has served as the Company's Vice President, Professional
Relations since August 1997. From February 1997 to August 1997, Ms. Church was
Georgia Account Team Manager with Compuware Corporation, an information systems
software and services company. Ms. Church was Mid-Atlantic Regional Director and
Regional Director for Telecommunications Accounts at Candle Corporation from
April 1994 to September 1995 and at Legent Corporation Regional Director for
Mid-Atlantic and then South-Eastern Regional Director from April 1990 to April
1994, both of which are information systems software and services companies.
Prior to that time, Ms. Church held senior management positions with Wang
Laboratories, a computer and office equipment company. Ms. Church also worked as
an educator in public schools in the State of Georgia. Ms. Church holds a B.A.
in English and Education from Georgia Southwestern College and an M.B.A. from
Emory University.

REBEL I. J. RICE has served as the Company's Vice President, Marketing since
November 1997. Ms. Rice has more than fourteen years of experience in consumer
marketing, product development and sales. From July 1994 to November 1997, Ms.
Rice served as a marketing consultant, primarily to consumer-focused technology
companies and start-ups. From April 1993 to June 1994, she was Business Unit
Manager and Marketing Director for the Kransco Companies, a toy company which
was sold to Mattel Toys in May 1994. Prior to that, Ms. Rice served first as
Marketing Director and then as National Sales Director at Aviva Sports. Ms. Rice
began her marketing career at The Procter & Gamble Company in Cincinnati, Ohio
in brand management. She holds a B.A. in Economics from Texas A&M University,
studied on a Rotary Fellowship at the University of Vienna, Austria, and earned
an M.B.A. from the Amos Tuck School of Business at Dartmouth College. Ms. Rice
is a member of the board of directors of Juma Ventures, a non-profit corporation
serving disadvantaged youth.

KANG S. LIM has served as the Company's Vice President, Intellectual
Property since September 1997. From January 1997 to August 1997, Mr. Lim was the
Director of Intellectual Property for VXTreme, Inc., an Internet applications
software company that was acquired by Microsoft Corporation. From December 1993
to January 1997, Mr. Lim was patent counsel at Sun Microsystems Inc., a computer
workstations company and from May 1992 to December 1993, practiced patent law at
the law firm of Skjerven, Morrill, MacPherson, Franklin & Friel. Mr. Lim holds a
B.Sc. in Computer Engineering from Manchester University, an M.S. in Computer
Engineering from the University of Southern California and a J.D. from the
University of California, Hastings College of the Law.

KATHERINE M. ALLEN has served as Director, Public School Teacher Training
and Marketing since April 1998. Ms. Allen has more than 14 years of experience
in information sales, marketing, and training for the K-12 public school market.
From January 1995 to January 1997, Ms. Allen was Director of Marketing and
Special Sales for Teacher Created Materials, Inc., a supplemental print
publisher and staff development provider. From December 1982 to December 1994,
Ms. Allen held several sales and marketing positions within the Dun & Bradstreet
Corporation, most recently as Western Regional Sales Manager for the Market Data
Retrieval division. Earlier in her career, Ms. Allen was an elementary school
teacher in Japan and Australia. Ms. Allen holds a B.S. in Elementary Education
from Western Connecticut State College and an M.S. in Mathematics from the
University of Bridgeport.

DR. KATHLEEN M. HOCKER has served as Director, Public School Sales, since
March 1998. Dr. Hocker has more than 13 years of experience in educational sales
and marketing specifically to the K-12 public school

41
<PAGE>
market and eight years of teaching experience at the elementary, special, and
higher education levels. From November 1996 to December 1997, Dr. Hocker was the
National Sales Manager, Interactive Products for Steck-Vaugh Company, a leading
publisher of educational materials. From February 1995 to November 1996, Dr.
Hocker was the Director of Curriculum and Assessment for the Northeastern U.S.
for Computer Curriculum Corporation, a division of Simon & Schuster. From
October 1993 to January 1995, she was Marketing Director for Ligature, a
curriculum development company. Her previous experience includes a position as
Regional Senior Consultant for Houghton Mifflin Company and educational
consulting for Addison Wesley Publishing Company. Dr. Hocker holds a B.A. in
Elementary Education and an M.Ed. in Special Education from Antioch University
and an Ed.D. from Nova University.

JAMES A. MILLS has served as Director, Business Development since July 1997.
Since October 1997 he has had responsibility for the development of the
Company's Fast ForWord Learning Centers. Prior to joining the Company, Jim was a
consultant advising California-based clients on financial, organizational, and
merger-related consolidation issues. From 1986 to June 1996, Mr. Mills served as
a Vice President at Citicorp Real Estate. Mr. Mills previously worked in cable
television programming and distribution for Viacom International, Inc., a cable
programming start-up venture and a national cable marketing trade association.
Mr. Mills holds a B.S. in Environmental Sciences from Stanford University and an
M.B.A. from Harvard Business School.

CARLETON A. HOLSTROM is a founder of the Company and has been a member of
the Board of Directors of the Company since February 1996. From February 1996 to
March 1997, Mr. Holstrom also served as the Company's Chief Financial Officer.
Mr. Holstrom retired in 1987 as Senior Vice President--Finance of The Bear
Stearns Companies. He is a director of Custodial Trust Company and is a trustee,
overseer or director of a number of non-profit organizations. Mr. Holstrom has
served as a member of the Board of Trustees and Board of Governors of Rutgers,
including as chairman and vice-chairman of both. He is currently a member of the
Board of Overseers' of the College of Letters and Science at the University of
Wisconsin-Madison. Mr. Holstrom holds a B.S. in Economics from University of
Wisconsin-Madison and an M.A. in Economics from Rutgers.

RODMAN W. MOORHEAD, III has been a member of the Board of Directors of the
Company since June 1998. Mr. Moorhead has been employed since 1973 by E.M.
Warburg, Pincus & Co., LLC, a specialized private equity firm (or its
predecessors), where he currently serves as Senior Managing Director. Mr.
Moorhead was nominated to the Company's Board of Directors in accordance with
rights held by Ventures, pursuant to an equity agreement. Upon the completion of
this Offering and so long as Ventures owns a requisite percentage of outstanding
shares of Common Stock, the Company must nominate Mr. Moorhead, or another
individual designated by Ventures and reasonably acceptable to the Company, and
use its best efforts to have Mr. Moorhead or such other individual elected to
the Board. See "Certain Transactions--Board Representation Right." Mr. Moorhead
is a director of Coventry Health Care, Inc., NeXstar Pharmaceuticals, Inc.,
Transkaryotic Therapies, Inc. and Xomed Surgical Products, Inc. and a number of
privately held companies. He is a trustee of The Taft School and a member of the
Overseers' Committee on University Resources at Harvard College. Mr. Moorhead
holds an A.B. in Economics and an M.B.A. from Harvard University.

DR. LEONARD S. SCHLEIFER has been a member of the Board of Directors of the
Company since May 1996. Dr. Schleifer is a founder of Regeneron Pharmaceuticals,
Inc. ("Regeneron"), a public company focused on the application of molecular and
cell biology to the search for novel human therapeutics, and has been a director
and its President and Chief Executive Officer since Regeneron's inception in
1988. He served as Chairman of the Board of Regeneron from 1990 to 1994. From
1984 to 1988, Dr. Schleifer was an Assistant Professor at the Cornell University
Medical School in the Departments of Neurology and Neurobiology, and in 1992 he
was appointed Clinical Professor of Neurology. Dr. Schleifer received his M.D.
and Ph.D. in Pharmacology from the University of Virginia. Dr. Schleifer is a
licensed physician and is certified in Neurology by the American Board of
Psychiatry and Neurology.

42
<PAGE>
JAMES E. THOMAS has served as a member of the Board of Directors of the
Company since November 1996. Since 1989, he has been employed by E.M. Warburg,
Pincus & Co., LLC, a specialized private equity firm (or its predecessors),
where he currently serves as Managing Director. Prior to 1989, Mr. Thomas was a
Vice President of Goldman Sachs International in London. Mr. Thomas was
nominated to the Company's Board of Directors in accordance with rights held by
Ventures, pursuant to an equity agreement. Upon the completion of this Offering
and so long as Ventures owns a requisite percentage of outstanding shares of
Common Stock, the Company must nominate Mr. Thomas, or another individual
designated by Ventures and reasonably acceptable to the Company, and use its
best efforts to have Mr. Thomas or such other individual elected to the Board.
See "Certain Transactions--Board Representation Right." Mr. Thomas is also a
director of Anergen, Inc., Celtrix Pharmaceuticals, Inc., Menley & James
Laboratories, Inc., Xomed Surgical Products, Inc., Transkaryotic Therapies,
Inc., Oxford GlycoSciences plc and a number of privately held companies. Mr.
Thomas holds a B.S. in Finance and Economics from The Wharton School of Business
at the University of Pennsylvania and an M.Sc. from The London School of
Economics.

BOARD COMPOSITION

The Company currently has authorized seven directors. In accordance with the
terms of the Company's Restated Certificate of Incorporation, which will become
effective upon the closing of this Offering (the "Restated Certificate"), the
terms of office of the directors will be divided into three classes: Class I,
Class II and Class III, which term will expire at the annual meetings of
stockholders to be held in 1999, 2000 and 2001, respectively (or special
meetings held in lieu thereof). The Class I directors are Messrs. Holstrom and
Thomas and Dr. Tallal, the Class II directors are Ms. Bolton and Dr. Schleifer,
and the Class III directors are Dr. Merzenich and Mr. Moorhead. At each annual
meeting of stockholders after the initial classification or special meeting in
lieu thereof, the successors to directors whose terms will then expire will be
elected to serve from the time of election and qualification until the third
annual meeting following election or special meeting held in lieu thereof. In
addition, the Restated Certificate provides that the authorized number of
directors may be changed only by resolution of the Board of Directors. Any
additional directorships resulting from an increase in the number of directors
will be distributed among the three classes so that, as nearly as possible, each
class will consist of one-third of the directors. This classification of the
Board of Directors may have the effect of delaying or preventing changes in
control or management of the Company. Although directors of the Company may be
removed for cause by the affirmative vote of the holders of a majority of the
Common Stock, the Restated Certificate provides that directors may be removed
without cause only by the affirmative vote of holders of at least 66 2/3% of the
voting power of all the then-outstanding shares of the Company's voting stock.

BOARD COMMITTEES

The Board of Directors has an Audit Committee and a Compensation Committee.
The Audit Committee, currently composed of Messrs. Holstrom and Thomas, reviews
the internal accounting procedures of the Company and consults with and reviews
the services provided by the Company's independent auditors. The Compensation
Committee, currently composed of Dr. Schleifer and Messrs. Holstrom and
Moorhead, reviews and recommends to the Board of Directors the compensation and
benefits of the Company. The Compensation Committee also administers the
issuance of stock options and other awards under the Company's equity incentive
plans.

DIRECTOR COMPENSATION

The Company currently provides cash compensation to directors who are not
employees of or consultants to the Company and do not hold five percent or more
of the Company's voting securities ("Non-Employee Directors") for services as
directors at a rate of $1,000 per regular meeting of the Board of Directors
attended in person and $500 per Board Committee meeting and per meeting of the
Board of

43
<PAGE>
Directors attended by telephone. Directors will also be reimbursed for certain
expenses in connection with attendance at Board of Directors and committee
meetings. Directors are currently eligible to participate in the Company's Stock
Option Plan and, beginning with the completion of this Offering, employee
directors will also be eligible to participate in the Company's 1998 Employee
Stock Purchase Plan and non-employee directors will be eligible to participate
in the 1998 Non-Employee Directors' Stock Option Plan. See "--Employee Benefit
Plans."

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

None of the members of the Compensation Committee of the Board of Directors
has been an officer or employee of the Company, except that Mr. Holstrom served
as the Company's Chief Financial Officer from February 1996 to March 1997. No
executive officer of the Company serves as a member of the board of directors or
compensation committee of any entity that has one or more executive officers
serving on the Company's Board of Directors or Compensation Committee.

EXECUTIVE COMPENSATION

The following table sets forth the compensation awarded or paid by the
Company during the fiscal year ended December 31, 1997 to the Company's Chief
Executive Officer and the other most highly compensated officer receiving
compensation in excess of $100,000 in 1997 (the "Named Executive Officers"):

SUMMARY COMPENSATION TABLE (1)

<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
-------------------
ANNUAL COMPENSATION NUMBER OF SHARES OF
---------------------------- COMMON STOCK
ALL OTHER UNDERLYING
NAME AND PRINCIPAL POSITION (2) SALARY ($) COMPENSATION ($) OPTIONS (#)
- -------------------------------------------------------------- ---------- ---------------- -------------------
<S> <C> <C> <C>
Sheryle J. Bolton ............................................ $ 205,000 $ 30,000(3) --
Chief Executive Officer

Frank M. Mattson ............................................. $ 138,000 -- 82,500
Chief Financial Officer
</TABLE>

- --------------------------

(1) In accordance with the rules of the Securities and Exchange Commission (the
"Commission"), the compensation described in this table does not include
medical, group life insurance or other benefits received by the Named
Executive Officers that are available generally to all salaried employees of
the Company and certain perquisites and other personal benefits received by
the Named Executive Officers, which do not exceed the lesser of $50,000 or
10% of any such officer's salary and bonus disclosed in this table.

(2) In determining compensation packages for its officers, the Company currently
takes into consideration the equity of the Company held by such officer.
Accordingly, certain officers may receive smaller compensation packages than
other officers of the Company with comparable responsibilities.

(3) Reflects reimbursement of relocation expenses in 1997.

44
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth each grant of stock options made during the
year ended December 31, 1997 to each of the Named Executive Officers:

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
---------------------------------------------------------
NUMBER OF ANNUAL RATES OF
SHARES OF PERCENTAGE OF STOCK APPRECIATION
COMMON STOCK TOTAL OPTIONS FOR OPTION TERM(#)
UNDERLYING GRANTED IN EXERCISE (4)
OPTIONS FISCAL 1997 PRICE EXPIRATION --------------------
NAME GRANTED(#) (1) (2) ($/SHARE) (3) DATE 5%($) 10%($)
- --------------------------- -------------- -------------- ------------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Sheryle J. Bolton -- -- -- -- -- --
Frank M. Mattson 70,000 20.1% $0.20 1/27/07
12,500 3.6% $0.40 10/28/07
</TABLE>

- ------------------------
(1) Each of the options was granted under the Company's Stock Option Plan and
has a term of 10 years, subject to earlier termination in certain events
related to termination of employment. Generally, initial option grants for
executive officers vest as to 25% of the total shares one year from the date
of hire, and one forty-eighth of the total shares vest on each monthly
anniversary thereafter. Additional option grants generally vest as to one
forty-eighth of the total shares each month.
(2) Based on an aggregate of 347,875 shares subject to options granted to
employees of the Company in 1997, including the Named Executive Officers.
(3) The exercise price per share of each option was equal to the fair market
value of the Common Stock as determined by the Board of Directors on the
date of grant.
(4) The potential realizable value is calculated based on the term of the option
at the time of grant (10 years) and an assumed initial public offering price
of $ per share. Stock price appreciation of 5% and 10% is assumed
pursuant to rules promulgated by the Securities and Exchange Commission and
does not represent the Company's prediction of its stock price performance.
The potential realizable value is calculated based on the deemed value at
the date of grant and assumes that the deemed value appreciates from the
date of grant at the indicated annual rate compounded annually for the
entire term of the option and that the option is exercised at the exercise
price and sold on the last day of its term at the appreciated price.

YEAR-END OPTION VALUES (1)

The following table sets forth for each of the Named Executive Officers the
number and value of securities underlying unexercised options held by the Named
Executive Officers at December 31, 1997:

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDER- VALUE OF UNEXERCISED
LYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT DECEMBER 31, 1997 AT DECEMBER 31, 1997 (2)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Sheryle J. Bolton..................... 135,416 364,584 $250,520 $674,480
Frank M. Mattson...................... -- 82,500 -- $150,125
</TABLE>

- ------------------------
(1) No Named Executive Officer exercised any option in fiscal 1997.
(2) Based on the difference between the deemed fair market value of the Common
Stock at December 31, 1997 ($2.05 per share) and the exercise price.

45
<PAGE>
EMPLOYEE BENEFIT PLANS

1998 EQUITY INCENTIVE PLAN. The Company's 1998 Equity Incentive Plan (the
"Incentive Plan") was adopted by the Company's Board of Directors in June 1998,
subject to stockholder approval. The Incentive Plan amends and restates the
Company's existing Stock Option Plan adopted in February 1996 and amended in
September 1996 (the "Prior Plan"). As of June 10, 1998, there were options
outstanding to purchase an aggregate of 1,539,252 shares of the Company's Common
Stock under the Prior Plan. The Incentive Plan will become effective upon
completion of this Offering. There are currently 2,800,000 shares of Common
Stock authorized for issuance under the Incentive Plan.

The Incentive Plan provides for the grant of incentive stock options, as
defined under the Internal Revenue Code of 1986, as amended (the "Code"), to
employees (including officers) and nonstatutory stock options, restricted stock
purchase awards, stock bonuses and stock appreciation rights to employees
(including officers), directors and consultants of the Company. The Incentive
Plan is administered by the Compensation Committee, which determines recipients
and types of options to be granted, including the exercise price, number of
shares subject to the option and the exercisability thereof.

The terms of stock options granted under the Incentive Plan generally may
not exceed 10 years. The Compensation Committee determines the exercise price of
options granted under the Incentive Plan, provided that the exercise price for
an incentive stock option cannot be less than 100% of the fair market value of
the Common Stock on the date of grant and, prior to the Company's stock being
publicly traded, the exercise price for a nonstatutory stock option cannot be
less than 85% of the fair market value of the Common Stock on the date of grant.
Options granted under the Incentive Plan vest at the rate specified in the
option agreement. Generally, the optionee may not transfer a stock option other
than by will or the laws of descent or distribution unless the optionee holds a
nonstatutory stock option that provides otherwise. However, an optionee may
designate a beneficiary who may exercise the option following the optionee's
death. An optionee whose service relationship with the Company or any affiliate
ceases for any reason may exercise vested options for the term provided in the
option agreement.

No incentive stock option (and prior to the Company's stock being publicly
traded, no nonstatutory stock option) may be granted to any person who, at the
time of the grant, owns (or is deemed to own) stock possessing more than 10% of
the total combined voting power of the Company or any affiliate of the Company,
unless the option exercise price is at least 110% of the fair market value of
the stock subject to the option on the date of grant and the term of the option
does not exceed five years from the date of grant. In addition, the aggregate
fair market value, determined at the time of grant, of the shares of Common
Stock with respect to which incentive stock options are exercisable for the
first time by an optionee during any calendar year (under all such plans of the
Company and its affiliates) may not exceed $100,000.

When the Company becomes subject to Section 162(m) of the Code (which denies
a deduction to publicly held corporations for certain compensation paid to
specified employees in a taxable year to the extent that the compensation
exceeds $1,000,000), no person may be granted options under the Incentive Plan
covering more than 625,000 shares of Common Stock in any calendar year.

Shares subject to stock options that have expired or otherwise terminated
without having been exercised in full again become available for the grant of
awards under the Incentive Plan. Under its general authority to grant options,
the Compensation Committee has the implicit authority to reprice outstanding
options or to offer optionees the opportunity to replace outstanding options
with new options for the same or a different number of shares. Both the original
and new options will count toward the Code Section 162(m) limitation set forth
above.

Restricted stock purchases may be at any price determined by the Board in
its sole discretion, and stock bonuses may be awarded in consideration of past
services without a purchase payment. Rights under a stock bonus or restricted
stock bonus agreement may not be transferred other than by will, the laws of

46
<PAGE>
descent and distribution or a domestic relations order during the time the stock
awarded pursuant to such an agreement remains subject to the agreement.

In the event of certain changes in control, all outstanding options under
the Incentive Plan either will be assumed or substituted for by any surviving
entity. If the surviving entity determines not to assume or substitute for such
awards, the vesting provisions of such stock awards will be accelerated and such
stock awards will be terminated upon the change in control if not previously
exercised. In the event of the acquisition pursuant to Section 13(d) or 14(d) of
the Exchange Act of 1934 of securities representing at least fifty percent (50%)
of the combined voting power of the Company, the vesting of stock awards will be
accelerated immediately upon the occurrence of such event.

1998 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN. In June 1998, the Board
adopted, subject to stockholder approval, the 1998 Non-Employee Directors' Stock
Option Plan (the "Directors' Plan") to provide for the automatic grant of
options to purchase shares of Common Stock to Non-Employee Directors of the
Company. The Board administers the Directors' Plan, unless the Board delegates
administration to a committee. The aggregate number of shares of Common Stock
that may be issued pursuant to options granted under the Directors' Plan is
100,000 shares.

Pursuant to the terms of the Directors' Plan, upon the completion of this
Offering, subject to certain exceptions, each Non-Employee Director will
automatically be granted an option to purchase 20,000 shares of Common Stock
(the "Initial Grant"). Any individual who becomes a Non-Employee Director after
this Offering will automatically be granted the Initial Grant upon being elected
to the Board of Directors. Any person who is a Non-Employee Director on the
first anniversary of this Offering automatically will be granted an option to
purchase 4,000 shares of Common Stock (the "Annual Grant") on the first
anniversary of this Offering and on each anniversary thereafter during his or
her service as a Non-Employee Director. Any individual who becomes a
Non-Employee Director after the first anniversary of this Offering will receive,
in addition to the Initial Grant, an Annual Grant on each anniversary of the
date such Non-Employee Director was first elected as a member of the Board
during his or her service as a Non-Employee Director.

Initial Grants vest quarterly over the four-year period following the date
of grant such that the entire Initial Grant shall become exercisable on the
fourth anniversary of the date of grant. Annual Grants vest quarterly over the
one-year period following the date of grant, such that the entire Annual Grant
will become exercisable on the first anniversary of the date of grant.

The exercise price of the options granted under the Directors' Plan will be
equal to the fair market value of the Common Stock on the date of grant. No
option granted under the Directors' Plan may be exercised after the expiration
of 10 years from the date it was granted. Options granted under the Directors'
Plan generally are non-transferable. However, an optionee may designate a
beneficiary who may exercise the option following the optionee's death. An
optionee whose service relationship with the Company or any affiliate (whether
as a Non-Employee Director of the Company or subsequently as an employee,
director or consultant of either the Company or an affiliate) ceases for any
reason may exercise vested options for the term provided in the option agreement
(12 months generally, 18 months in the event of death).

In the event of certain changes in control, all outstanding options under
the Directors' Plan either will be assumed or substituted for by any surviving
or acquiring entity. If the surviving or acquiring entity determines not to
assume or substitute for such options, the options will be accelerated prior to
the change in control and will be terminated if not exercised prior to the
change in control. In the event of the acquisition pursuant to Section 13(d) or
14(d) of the Exchange Act of 1934 of securities representing at least fifty
percent (50%) of the combined voting power of the Company, the vesting of
options will be accelerated immediately upon the occurrence of such event.

47
<PAGE>
1998 EMPLOYEE STOCK PURCHASE PLAN. In June 1998, the Company adopted,
subject to stockholder approval, the 1998 Employee Stock Purchase Plan (the
"Purchase Plan"), authorizing the issuance of 500,000 shares of Common Stock
pursuant to purchase rights granted to employees of the Company or to employees
of any affiliate of the Company. The Purchase Plan is intended to qualify as an
employee stock purchase plan within the meaning of Section 423 of the Code.

The Purchase Plan provides a means by which employees may purchase Common
Stock of the Company through payroll deductions. The Purchase Plan is
implemented by offerings of rights to eligible employees. Under the Plan, the
Company may specify offerings with a duration of not more than 27 months, and
may specify shorter purchase periods within each offering. The first offering
will begin on the effective date of this Offering and be approximately 12 months
in duration with purchases occurring every six months. Unless otherwise
determined by the Board of Directors, Common Stock is purchased for accounts of
employees participating in the Purchase Plan at a price per share equal to the
lower of (i) 85% of the fair market value of a share of Common Stock on the date
of commencement of participation in the offering or (ii) 85% of the fair market
value of a share of Common Stock on the date of purchase. Generally, all regular
employees, including executive officers, who work at least 20 hours per week and
are customarily employed by the Company or by an affiliate of the Company for at
least five months per calendar year may participate in the Purchase Plan and may
authorize payroll deductions of up to 15% of their base compensation for the
purchase of stock under the Purchase Plan.

Eligible employees may be granted rights only if the rights together with
any other rights granted under employee stock purchase plans do not permit such
employee's rights to purchase stock of the Company to accrue at a rate which
exceeds $25,000 of fair market value of such stock for each calendar year in
which such rights are outstanding. No employee shall be eligible for the grant
of any rights under the Purchase Plan if immediately after such rights are
granted, such employee has voting power over 5% or more of the Company's
outstanding capital stock. As of the date hereof, no shares of Common Stock had
been purchased under the Purchase Plan.

401(K) PLAN. In January 1996, the Company adopted a tax-qualified employee
savings and retirement plan (the "401(k) Plan") covering all of the Company's
employees. Pursuant to the 401(k) Plan, employees may elect to reduce their
current compensation by up to the lesser of 20% of eligible compensation or the
statutorily prescribed annual limit ($10,000 in 1998) and have the amount of
such reduction contributed to the 401(k) Plan. The trustee under the 401(k)
Plan, at the direction of each participant, invests the assets of the 401(k)
Plan in any of four investment options. The 401(k) Plan is intended to qualify
under Section 401 of the Internal Revenue Code so that contributions by
employees to the 401(k) Plan, and income earned on plan contributions, are not
taxable to employees until withdrawn, and so that the contributions by employees
will be deductible by the Company when made. The Company may make matching or
additional contributions to the 401(k) Plan, in amounts to be determined
annually by the Board of Directors.

EMPLOYMENT AND CONSULTING AGREEMENTS

In October 1996, the Company entered into an employment agreement with Ms.
Bolton that provided that, in the event Ms. Bolton's employment with the Company
is terminated without cause prior to November 1, 1998, Ms. Bolton would receive
her base salary on regularly scheduled pay days for the 12 months following such
termination; provided that such amount would be reduced by any compensation she
is then receiving from other employment as an executive.

In September 1996, the Company entered into consulting agreements with Dr.
Merzenich and Dr. Tallal. The agreement with Dr. Merzenich generally provides,
among other things, that he will devote up to 20 percent of his professional
time on consulting activities for the Company through December 31, 2001. The
agreement with Dr. Tallal generally provides, among other things, that she will
devote an average of one day per week on consulting activities for the Company
through December 31, 2001.

48
<PAGE>
Historically, the amount paid to Dr. Merzenich under his consulting agreement
has not exceeded $60,000 per year. The amount paid to Dr. Tallal under her
consulting agreement was $70,000 in 1997.

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

In June 1998, the Board authorized the Company to enter into indemnity
agreements with each of the Company's directors and executive officers. The form
of indemnity agreement provides that the Company will indemnify against any and
all expenses of the director or executive officer who incurred such expenses
because of his or her status as a director or executive officer, to the fullest
extent permitted by the Company's Bylaws.

The Company's Amended and Restated Certificate of Incorporation (the
"Certificate") and Bylaws contain certain provisions relating to the limitation
of liability and indemnification of directors and officers. The Certificate
provides that directors of the Company shall not be personally liable to the
Company or its stockholders for monetary damages for any breach of fiduciary
duty as a director, except for liability: (i) for any breach of the directors'
duty of loyalty to the Company or its stockholders; (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law; (iii) in respect of certain unlawful payments of dividends or unlawful
stock repurchases or redemptions as provided in Section 174 of the Delaware
General Corporation Law; or (iv) for any transaction from which the director
derives any improper personal benefit. The Certificate also provides that if the
Delaware General Corporation Law is amended after the approval by the Company's
stockholders of the Certificate to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of the Company's directors shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law. In addition, as permitted by
Section 145 of the Delaware General Corporation Law, the Bylaws of the Company
provide that the Company shall indemnify its directors and executive officers
and may indemnify its other officers, employees and other agents to the fullest
extent not prohibited by Delaware law. These provisions do not affect a
director's responsibilities under any other laws, such as the federal securities
laws or state or federal environmental laws.

49
<PAGE>
CERTAIN TRANSACTIONS

From April to September 1996, the Company issued an aggregate of 1,444,681
shares of its Series A Preferred Stock. An aggregate of 1,142,956 shares of the
Company's Series A Preferred Stock were sold at a price of $1.70 per share; an
aggregate of 92,592 shares of the Company's Series A Preferred Stock were sold
at a price of $1.62 per share to Drs. Merzenich, Holstrom and Jenkins pursuant
to an Employee Stock Purchase Plan. In October and November 1996, the Company
issued an aggregate of 2,250,000 shares of Series B Preferred Stock at a price
of $1.80 per share. In connection with the sale of Series B Preferred Stock, the
Company also issued warrants to purchase a total of 1,428,571 shares of Series C
Preferred Stock with an exercise price of $2.80 per share (all of which have
since been exercised). Listed below are the directors, executive officers and
five percent stockholders who have made equity investments in the Company to
purchase shares of the Company's Preferred Stock or Common Stock. See "Principal
and Selling Stockholders."

<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C
COMMON PREFERRED PREFERRED PREFERRED AGGREGATE
INVESTOR STOCK STOCK STOCK STOCK CONSIDERATION
- ------------------------------------------------- ---------- ----------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Dr. Michael M. Merzenich......................... 1,250,000 30,864 -- -- $ 51,000

Dr. Paula A. Tallal.............................. 1,250,000 -- -- -- $ 1,000

Dr. William M. Jenkins........................... 833,337 30,864 -- -- $ 50,667

Dr. Steven L. Miller............................. 185,175 -- -- -- $ 148

Warburg, Pincus Ventures, L.P. (1)............... -- -- 2,222,222 1,428,571 $ 8,000,000

Carleton A. Holstrom (2)......................... 231,474 60,276 -- -- $ 100,186

Dr. Leonard S. Schleifer......................... 50,000 29,412 -- -- $ 58,501
</TABLE>

- --------------------------

(1) Messrs. Moorhead and Thomas, directors of the Company, are affiliated with
Ventures. Does not include warrants to purchase 100,000 shares of the
Company's Common Stock issued to Ventures in June 1998 in connection with
Ventures' guarantee of an unsecured line of credit obtained by the Company.

(2) Includes 29,412 shares of Series A Preferred Stock held by the Solon Edward
Trust #2 ("Solon Trust"), for which Mr. Holstrom serves as trustee.

The holders of the Company's Series B and C Preferred Stock are entitled to
certain registration rights with respect to the Common Stock issued or issuable
upon conversion of thereof. See "Description of Capital Stock--Registration
Rights."

In connection with the issuance of Series B Preferred Stock and the warrants
to purchase Series C Preferred Stock referenced above, the Company entered into
an agreement that requires the Company, following the completion of this
Offering and as long as Ventures owns at least 10% and 20% of the outstanding
Common Stock, to nominate and use its best efforts to elect one or two
individuals, respectively, designated by Ventures for election to the Board of
Directors. See "Description of Capital Stock--Board Representation Rights."

In June 1998, the Company obtained a $3 million unsecured line of credit
from BankBoston, N.A. (the "Line of Credit") which is guaranteed by Ventures. In
connection with Ventures providing such guarantee, the Company issued to
Ventures warrants to purchase 100,000 shares of the Company's Common Stock at
$6.00 per share. Such warrants expire on May 31, 2003. Additionally, in order to
enable the Company to repay the outstanding balance on the Line of Credit,
Ventures agreed to purchase up to 500,000 shares of the Company's capital stock
at $6.00 per share if requested by the Company. The Company's right to require
Ventures to purchase such securities expires upon the completion of this
Offering.

50
<PAGE>
Pursuant to the University License, the Company is obligated to make certain
royalty payments to the Regents in exchange for a license to commercially
develop and sell products that make use of a patent filed by Drs. Tallal,
Merzenich, Jenkins, and Miller (each an "Inventor" and, collectively, the
"Inventors"), among others, and subsequently assigned to the Regents. Drs.
Tallal and Merzenich are members of the Board of Directors of the Company, and
Drs. Jenkins and Miller are vice presidents of the Company. Pursuant to patent
policies of the University of California and Rutgers University (collectively,
the "Universities"), the Universities distribute to the Inventors, on an annual
basis, a portion of the royalties received from the Company. The amounts paid to
each Inventor under such arrangements have not historically exceeded $60,000 per
year.

Ms. Bolton's husband, Steven Shane, is a principal of TouchStar
Communications ("TouchStar"), which has produced certain of the Company's
promotional and training videos. The total compensation paid to TouchStar for
such production services was approximately $131,000 and $2,000 in 1997 and the
three months ended March 31, 1998, respectively. No amounts were paid to
TouchStar in 1996.

The Company believes that the foregoing transactions were in its best
interests. As a matter of policy these transactions were, and all future
transactions between the Company and any of its officers, directors or principal
stockholders will be, approved by a majority of the disinterested members of the
Board of Directors, on terms no less favorable to the Company than could be
obtained from unaffiliated third parties and in connection with bona fide
business purposes of the Company. See "Management-- Employment and Consulting
Agreements."

51
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of April 30, 1998 (except
as otherwise indicated) and as adjusted to reflect the sale of the Common Stock
being offered hereby by (assuming no exercise of the Underwriters' over-
allotment option): (i) each person (or group of affiliated persons) who is known
by the Company to own beneficially more than 5% of the Common Stock; (ii) each
of the Named Executive Officers; (iii) each of the Company's directors and (iv)
all directors and executive officers of the Company as a group. Unless otherwise
noted, the address for the individuals listed below is: c/o Scientific Learning
Corporation, 1995 University Avenue, Suite 400, Berkeley, CA 94704.

<TABLE>
<CAPTION>
PERCENTAGE OWNED (1)
------------------------
BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNERS SHARES (1) OFFERING OFFERING
- ------------------------------------------------------------------------------- ---------- ----------- -----------
<S> <C> <C> <C>
Warburg, Pincus Ventures, L.P. (2)............................................. 3,750,793 40.1% %
466 Lexington Avenue
New York, NY 10017
Sheryle J. Bolton (3).......................................................... 197,916 2.1
Dr. Michael M. Merzenich (3)(4)................................................ 1,005,864 10.9
Dr. Paula A. Tallal (3)........................................................ 1,234,434 13.3
Frank M. Mattson (3)........................................................... 27,315 0.3
Dr. William M. Jenkins......................................................... 864,201 9.3
Carleton A. Holstrom (5)....................................................... 291,750 3.2
Rodman W. Moorhead, III (2)(6)................................................. 3,750,793 40.1
Dr. Leonard S. Schleifer....................................................... 79,412 0.9
James E. Thomas (2)(6)......................................................... 3,750,793 40.1

All directors and executive officers as a group (9 persons) (7)................ 7,451,685 76.7% %
</TABLE>

- --------------------------
* Less than one percent.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Except as indicated by
footnote, and subject to community property laws where applicable, the
persons named in the table above have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them.
Percentage of beneficial ownership is based on 9,245,034 shares of Common
Stock outstanding as of April 30, 1998 and shares of Common Stock
outstanding upon completion of this Offering.
(2) Includes 100,000 shares issuable upon the exercise of an immediately
exercisable warrant issued in June 1998. Messrs. Moorhead and Thomas,
directors of the Company, are affiliated with Ventures. The sole general
partner of Ventures is Warburg, Pincus & Co., a New York general partnership
("WP"). E.M. Warburg, Pincus & Co., LLC, a New York limited liability
company ("EMW LLC"), manages Ventures. The members of EMW LLC are
substantially the same as the partners of WP. Lionel I. Pincus is the
managing partner of WP and the managing member of EMW LLC and may be deemed
to control both WP and EMW LLC. WP has a 15% interest in the profits of
Ventures as the general partner and also owns approximately 1.5% of the
limited partnership interests in Ventures. See "Certain Transactions."
(3) Includes 197,916, 25,000, 25,000 and 27,315 shares issuable upon exercise of
stock options that are exercisable within 60 days of April 30, 1998 held by
Ms. Bolton, Drs. Merzenich and Tallal and Mr. Mattson, respectively.
(4) Includes 605,864 shares held in the Merzenich Family Trust.
(5) Includes 231,474 shares held by the Holstrom Family Limited Partnership and
29,412 shares held in the Solon Trust, for which Mr. Holstrom serves as
trustee. Mr. Holstrom disclaims beneficial ownership of the shares held in
the Solon Trust within the meaning of Rule 13d-3 under the Securities Act of
1934.
(6) All of the shares indicated as owned by Messrs. Moorhead and Thomas are
owned directly by Ventures and are included because of each individual's
affiliation with Ventures. Messrs. Moorhead and Thomas are both directors of
the Company. Mr. Thomas is a Managing Director of EMW LLC and a general
partner of WP. Mr. Moorhead is a Senior Managing Director of EMW LLC and a
general partner of WP. As such, Mr. Moorhead and Mr. Thomas may be deemed to
have an indirect pecuniary interest (within the meaning of Rule 16a-1 under
the

52
<PAGE>
Securities Exchange Act of 1934) in an indeterminate portion of the shares
beneficially owned by Ventures and WP. Each of Messrs. Moorhead and Thomas
disclaims beneficial ownership of these shares within the meaning of Rule
13d-3 under the Securities Exchange Act of 1934. The address for Messrs.
Moorhead and Thomas is:
c/o Warburg, Pincus Ventures, L.P., 466 Lexington Avenue, New York, NY
10017.
(7) Includes the information in notes (1) through (6), as applicable.

SELLING STOCKHOLDERS AND EXERCISE OF OVER-ALLOTMENT OPTION

If the Underwriters' over-allotment option is exercised in full, the Selling
Stockholders will sell an aggregate of shares of Common Stock. The number
of shares being sold, and, if sold, the number of shares and percentages of
outstanding shares beneficially owned upon completion of this Offering, by the
following individuals will be as follows: [name], [number of] shares to be sold,
[ ] shares (approximately %) beneficially owned after this Offering.

53
<PAGE>
DESCRIPTION OF CAPITAL STOCK

The following description of the capital stock of the Company and certain
provisions of the Company's Certificate of Incorporation and Bylaws is a summary
and is qualified in its entirety by the provisions of the Certificate of
Incorporation and Bylaws, which have been filed as exhibits to the Company's
Registration Statement, of which this Prospectus is a part.

Upon the closing of this Offering, the authorized capital stock of the
Company will consist of 50,000,000 shares of Common Stock, $0.001 par value per
share ("Common Stock ), and 1,000,000 shares of Preferred Stock, $0.001 par
value per share ("Preferred Stock").

COMMON STOCK

As of March 31, 1998, there were 9,244,734 shares of Common Stock
outstanding held by 95 holders of record. The holders of Common Stock are
entitled to one vote for each share held of record on all matters submitted to a
vote of the stockholders. The holders of Common Stock are not entitled to
cumulative voting rights with respect to the election of directors, and as a
consequence, minority stockholders will not be able to elect directors on the
basis of their votes alone. Subject to preferences that may be applicable to any
shares of Preferred Stock issued in the future, holders of Common Stock are
entitled to receive ratably such dividends as may be declared by the Board of
Directors out of funds legally available therefor. See "Dividend Policy." In the
event of a liquidation, dissolution or winding up of the Company, holders of the
Common Stock are entitled to share ratably in all assets remaining after payment
of liabilities and the liquidation preference of any then outstanding Preferred
Stock. Holders of Common Stock have no preemptive rights and no right to convert
their Common Stock into any other securities. There are no redemption or sinking
fund provisions applicable to the Common Stock. All outstanding shares of Common
Stock are, and all shares of Common Stock to be outstanding upon completion of
this Offering will be, fully paid and nonassessable.

PREFERRED STOCK

The Board of Directors has the authority, without further action by the
stockholders, to issue up to 1,000,000 shares of Preferred Stock in one or more
series and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, sinking fund terms and the number of shares
constituting any series or the designation of such series, without any further
vote or action by stockholders. The issuance of Preferred Stock could adversely
affect the voting power of holders of Common Stock and the likelihood that such
holders will receive dividend payments and payments upon liquidation and could
have the effect of delaying, deferring or preventing a change in control of the
Company. The Company has no present plan to issue any shares of Preferred Stock.

REGISTRATION RIGHTS

Pursuant to an Amended and Restated Registration Rights Agreement among the
Company and certain of its stockholders, such stockholders (the "Holders") are
entitled to certain rights with respect to the registration of approximately
3,678,571 shares of Common Stock under the Securities Act. If the Company
proposes to register any of its securities under the Securities Act, the Holders
are entitled to notice of such registration and are entitled to include their
shares therein at the Company's expense, subject to certain limitations. In
addition, the Holders may require the Company at its expense to register their
shares on Form S-3 when such form becomes available for use by the Company.

BOARD REPRESENTATION RIGHTS

Pursuant to a Securities Purchase Agreement between the Company and
Ventures, among others, the Company is required, following the completion of
this Offering and for so long as Ventures owns

54
<PAGE>
beneficially and of record at least 20% of the outstanding shares of Common
Stock, to nominate and use its best efforts to have two individuals, designated
by Ventures and reasonably acceptable to the Company, elected to the Board. In
addition, the Company is required, following the completion of this Offering and
for so long as Ventures owns beneficially and of record at least 10% of the
outstanding shares of Common Stock, to nominate and use its best efforts to have
one individual, designated by Ventures and reasonably acceptable to the Company,
elected to the Board. Ventures may not assign the above described right.

DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS

The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law (the "Delaware Law"), an anti-takeover law. In general,
the statute prohibits a publicly held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
For purposes of Section 203, a "business combination" includes a merger, asset
sale or other transaction resulting in a financial benefit to the interested
stockholder, and an "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years prior, did own) 15% or
more of the corporation's voting stock.

Effective upon the closing of this Offering, the Company's Restated
Certificate and Restated Bylaws, among other things, require that any action
required or permitted to be taken by stockholders be effected at a duly called
annual or special meeting of the stockholders and may not be effected by a
consent in writing, require that advance notice be given of stockholder
proposals and director nominations and prohibit cumulative voting in the
election of directors. In addition, the Restated Certificate authorizes the
Board of Directors to issue up to 1,000,000 shares of Preferred Stock and to
determine the rights, preferences and privileges thereof without any further
vote or action by the stockholders, provides for a classified Board of Directors
and specifies that the authorized number of directors may be changed only by a
resolution of the Board of Directors. Special meetings of the stockholders of
the Company may be called only by the Board of Directors, the Chairman of the
Board or the Chief Executive Officer. These provisions could have the effect of
making it more difficult for a third party to acquire a majority of the
outstanding voting stock of the Company, or delay, prevent or deter a merger,
acquisition or tender offer in which the Company's stockholders could receive a
premium for their shares, a proxy contest for control of the Company or other
change in the Company's management. See "Risk Factors--Possible Anti-Takeover
Effect of Certain Charter Provisions."

TRANSFER AGENT AND REGISTRAR

BankBoston, N.A. has been appointed as the transfer agent and registrar for
the Company's Common Stock.

55
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

Upon the completion of this Offering, the Company will have outstanding
shares of Common Stock, based on the number of shares of Common Stock
outstanding as of March 31, 1998 and assuming no exercise of the Underwriters'
over-allotment option. Of these shares, all the shares sold in this Offering
will be freely tradable without restrictions or further registration under the
Securities Act. The remaining 9,244,734 shares of Common Stock held by existing
stockholders are "restricted securities" within the meaning of the Securities
Act ("Restricted Shares"). Restricted Shares may be sold in the public market
only if registered or if they qualify for an exemption from registration under
Rules 144, 144(k) or 701 promulgated under the Securities Act. The Company has
granted holders of 3,678,571 Restricted Shares certain rights with respect to
the registration of such shares. See "Description of Capital Stock--
Registration Rights."

Holders of 8,849,977 shares of the Company's Common Stock, including all
executive officers and directors, have entered into lock-up agreements with the
representatives of the Underwriters. See "Underwriting." As a result of such
contractual restrictions and the provisions of Rule 144 and 701, additional
shares will be available for sale in the public market as follows: (i) 374,051
Restricted Shares will be eligible for immediate sale on the date of this
Prospectus; (ii) 771,650 shares of Common Stock issuable upon exercise of
currently outstanding options will be eligible for sale 90 days after the date
of this Prospectus; (iii) 8,870,683 Restricted Shares will be eligible for sale
180 days after the date of this Prospectus upon expiration of lock-up
agreements; and (iv) the remainder of the Restricted Shares will be eligible for
sale from time to time thereafter upon expiration of their respective one-year
holding periods.

In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, any holder, including an affiliate of the Company
within the meaning of Rule 405 under the Securities Act (an "Affiliate"), of
Restricted Shares as to which at least one year has elapsed since the date of
the holder's acquisition of such shares from the Company or from an Affiliate,
would be entitled within any three-month period to sell a number of shares that
does not exceed the greater of 1% of the then outstanding shares of Common Stock
(approximately shares immediately after the completion of this Offering
assuming no exercise of the Underwriters' over-allotment option) or the average
weekly trading volume of the Common Stock on the Nasdaq National Market during
the four calendar weeks preceding the date on which notice of the sale is filed
with the Commission. Sales under Rule 144 are subject to certain requirements
relating to manner of sale, notice and availability of current public
information about the Company. However, a person (or persons whose shares are
aggregated) who is not deemed to have been an Affiliate of the Company at any
time during the 90 days immediately preceding the sale and who beneficially owns
Restricted Shares is entitled to sell such shares under Rule 144(k) without
regard to the limitations described above, provided that at least two years have
elapsed since the date the shares were acquired from the Company or from an
Affiliate of the Company. The foregoing is a summary of Rule 144 and is not
intended to be a complete description of that rule.

Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from the Company by its employees,
directors, officers, consultants or advisors prior to the completion of this
Offering, pursuant to written compensatory benefit plans or written contracts
relating to the compensation of such persons. In addition, the Commission has
indicated that Rule 701 will apply to stock options granted by the Company
before this Offering, along with the shares acquired upon exercise of such
options. Securities issued in reliance on Rule 701 are deemed to be Restricted
Shares and, beginning 90 days after the date of this Prospectus (unless subject
to the contractual restrictions described above), may be sold by persons other
than Affiliates, subject only to the manner of sale provisions of Rule 144 and
by Affiliates under Rule 144 without compliance with its one-year minimum
holding period requirements.

The Company intends to file a registration statement on Form S-8 under the
Securities Act covering shares of Common Stock reserved for issuance under the
Incentive Plan, the Directors' Plan and the

56
<PAGE>
Purchase Plan. See "Management--Employee Benefit Plans." Such registration
statement is expected to be filed and become effective as soon as practicable
after the completion of this Offering. Accordingly, shares registered under such
registration statement will, subject to Rule 144 volume limitations applicable
to Affiliates of the Company, be available for sale in the open market, unless
such shares are subject to vesting restrictions with the Company or the lock-up
agreements described above. As of March 31, 1998, options to purchase 1,472,960
shares of Common Stock were issued and outstanding. See "Management-- Executive
Compensation" and "--Employee Benefit Plans."

Prior to this Offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that an active public market for the
Common Stock will develop or be sustained after this Offering. As described
herein, only a limited number of shares will be available for sale shortly after
this Offering because of certain contractual and legal restrictions on resale.
Sales of substantial amounts of Common Stock of the Company in the public market
after completion of this Offering could materially and adversely affect the
prevailing market price and the ability of the Company to raise equity capital
in the future.

57
<PAGE>
UNDERWRITING

The Underwriters named below (the "Underwriters"), represented by
NationsBanc Montgomery Securities LLC, BancAmerica Robertson Stephens and
Pacific Growth Equities, Inc. (the "Representatives"), have severally agreed,
subject to the terms and conditions set forth in the underwriting agreement (the
"Underwriting Agreement"), by and between the Company and the Underwriters, to
purchase from the Company the number of shares of Common Stock indicated below
opposite their respective names, at the public offering price less the
underwriting discount set forth on the cover page of this Prospectus. The
Underwriting Agreement provides that the obligations of the Underwriters are
subject to certain conditions precedent and that the Underwriters are committed
to purchase all of the shares of Common Stock, if they purchase any.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ----------------------------------------------------------------------------------- -----------
<S> <C>
NationsBanc Montgomery Securities LLC..............................................
BancAmerica Robertson Stephens.....................................................
Pacific Growth Equities, Inc.......................................................
-----------
Total............................................................................
-----------
-----------
</TABLE>

The Representatives have advised the Company that the Underwriters propose
initially to offer the shares of Common Stock to the public on the terms set
forth on the cover page of this Prospectus. The Underwriters may allow selected
dealers a concession of not more than $ per share; and the Underwriters may
allow, and such dealers may reallow, a concession of not more than $ per
share to certain other dealers. After the initial public offering, the offering
price and other selling terms may be changed by the Representatives. The Common
Stock is offered subject to receipt and acceptance by the Underwriters and to
certain other conditions, including the right to reject orders in whole or in
part.

The Company and the Selling Stockholders have granted to the Underwriters an
over-allotment option, exercisable for 30 days from the date of this Prospectus,
to purchase up to a maximum of and additional shares of Common Stock,
respectively, to cover over-allotments, if any, at the same price per share as
the initial shares to be purchased by the Underwriters. To the extent the
Underwriters exercise such over-allotment option, each of the Underwriters will
be committed, subject to certain conditions, to purchase such additional shares
in approximately the same proportion as set forth in the above table. The
Underwriters may purchase such shares only to cover over-allotments made in
connection with this Offering.

The Underwriting Agreement provides that the Company and the Selling
Stockholders will indemnify the Underwriters against certain liabilities,
including civil liabilities under the Securities Act, or will contribute to
payments the Underwriters may be required to make in respect thereof.

The Company's officers and directors and certain stockholders of the Company
prior to this Offering have agreed that for a period commencing on June 8, 1998
and continuing to a date 180 days after the first date any of the Common Stock
to be sold in this Offering is released by the Underwriters for sale to the
public they will not, subject to certain exceptions, directly or indirectly
sell, offer, contract or grant any option to sell, pledge, transfer, establish
an open put equivalent position or otherwise dispose of any shares of Common
Stock, options or warrants to acquire shares of Common Stock or securities
exchangeable or exercisable for or convertible into shares of Common Stock,
without the prior written consent of

58
<PAGE>
NationsBanc Montgomery Securities LLC. This 180-day lock-up will be of no
further force or effect in the event the Registration Statement is not declared
effective on or before December 31, 1998. The Company has also agreed not to
issue, offer, sell, grant options to purchase, or otherwise dispose of any of
the Company's equity securities for a period of 180 days after the effective
date of this Offering without the prior written consent of NationsBanc
Montgomery Securities LLC except for securities issued by the Company in
connection with acquisitions, and for grants and exercises of stock options,
subject in each case to any remaining portion of the 180-day period applying to
shares issued or transferred. In evaluating any request for a waiver of the
180-day lock-up period, NationsBanc Montgomery Securities LLC will consider, in
accordance with their customary practice, all relevant facts and circumstances
at the time of the request, including, without limitation, the recent trading
market for the Common Stock, the size of the request and, with respect to a
request by the Company to issue additional equity securities, the purpose of
such an issuance. See "Shares Eligible For Future Sale."

In connection with this Offering, certain Underwriters and selling group
members and their respective affiliates engage in transactions that stabilize,
maintain or otherwise affect the market price of the Common Stock. Such
transactions may include stabilization transactions effected in accordance with
Rule 104 of Regulation M under the Securities and Exchange Act of 1934, as
amended, pursuant to which such persons may bid for or purchase Common Stock for
the purpose of stabilizing its market price. The Underwriters also may create a
short position for the account of the Underwriters by selling more Common Stock
in connection with this Offering than they are committed to purchase from the
Company and, in such case, may purchase Common Stock in the open market
following completion of this Offering to cover all or a portion of such short
position. The Underwriters may also cover all or a portion of such short
position, up to shares of Common Stock, by exercising the Underwriters'
over-allotment option referred to above. In addition, NationsBanc Montgomery
Securities LLC on behalf of the Underwriters, may impose "penalty bids" under
contractual arrangements with the Underwriters, whereby it may reclaim from an
Underwriter (or dealer participating in this Offering) for the account of the
other underwriters, the selling concession with respect to Common Stock that is
distributed in this Offering but subsequently purchased for the account of the
Underwriters in the open market. Any of the transactions described in this
paragraph may result in the maintenance of the price of the Common Stock at a
level above that which might otherwise prevail in the open market. None of the
transactions described in this paragraph is required, and, if they are
undertaken, they may be discontinued at any time.

The Representatives have informed the Company that the Underwriters do not
intend to confirm sales of Common Stock offered by this Prospectus to accounts
over which they exercise discretionary authority in excess of 5% of the number
of shares of Common Stock offered hereby.

Prior to this Offering, there has been no public trading market for the
Common Stock. Consequently, the initial public offering price was determined by
negotiations between the Company and the Representatives. Among the factors
considered in such negotiations were the history of and prospects for the
Company and the industries in which it operates, an assessment of the Company's
management, its past and present earnings and the trend of such earnings, the
prospects for future earnings of the Company, the present state of the Company's
development, the general condition of securities markets at the time of this
Offering and the market price of publicly traded stock of comparable companies
in recent periods.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Cooley Godward LLP, San Francisco, California ("Cooley
Godward"). Certain legal matters will be passed upon for the Underwriters by
Brobeck, Phleger & Harrison LLP, San Francisco, California. An investment
partnership affiliated with Cooley Godward owns 27,778 shares of the Company's
Preferred Stock.

59
<PAGE>
EXPERTS

The financial statements of the Company at December 31, 1996 and 1997 and
for the years then ended appearing in this Prospectus and the Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.

ADDITIONAL INFORMATION

A Registration Statement on Form S-1, including amendments thereto, relating
to the Common Stock offered hereby has been filed by the Company with the
Securities and Exchange Commission (the "Commission"), Washington, D.C. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto. Statements contained in this
Prospectus as to the contents of any contract or other document referred to are
not necessarily complete and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to such Registration Statement, exhibits
and schedules. A copy of the Registration Statement may be inspected by anyone
without charge at the Commission's principal office at the public reference
facility maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
located at Seven World Trade Center, 13th Floor, New York, New York 10048 and
500 Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all or any
part thereof may be obtained from the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon the payment of certain fees prescribed by the
Commission. The Commission maintains a web site that contains reports, proxy
statements and other information regarding registrants, including the Company.
The address of the Commission's web site is http://www.sec.gov.

As a result of this Offering, the Company will be subject to the information
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). So long as the Company is subject to periodic reporting requirements of
the Exchange Act, it will continue to furnish the reports and other information
required thereby to the Commission. The Company intends to furnish its
stockholders with annual reports containing financial statements audited by an
independent public accounting firm and quarterly reports containing unaudited
financial information for the first three quarters of each fiscal year.

TRADEMARKS

Fast ForWord-TM-, the Fast ForWord logo and certain other marks contained in
this Prospectus are trademarks of the Company. This Prospectus also includes
trade names and trademarks of other companies, whose mention herein is with due
recognition of and without intent to misappropriate their marks.

60
<PAGE>
SCIENTIFIC LEARNING CORPORATION
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors.................................. F-2

Balance Sheets..................................................................... F-3

Statements of Operations........................................................... F-4

Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity
(Deficit)........................................................................ F-5

Statements of Cash Flows........................................................... F-6

Notes to Financial Statements...................................................... F-7
</TABLE>

F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders

Scientific Learning Corporation

We have audited the accompanying balance sheets of Scientific Learning
Corporation as of December 31, 1996 and 1997, and the related statements of
operations, redeemable convertible preferred stock and stockholders' equity
(deficit), and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Scientific Learning Corporation
at December 31, 1996 and 1997, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.

/S/ ERNST & YOUNG LLP

Walnut Creek, California

April 9, 1998

------------------------

The foregoing report is in the form that will be signed upon completion of
stockholder approval of the one-for-two reverse stock split and amendment of the
Certificate of Incorporation described in Note 8 to the financial statements.

/S/ ERNST & YOUNG LLP

Walnut Creek, California

June 9, 1998

F-2
<PAGE>
SCIENTIFIC LEARNING CORPORATION
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1997
------------- ------------- MARCH 31, PRO FORMA
1998 STOCKHOLDERS'
----------- EQUITY
MARCH 31,
(UNAUDITED) 1998
-------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 3,822 $ 2,699 $ 1,284
Accounts receivable...................................... -- 44 56
Prepaid expenses and other current assets................ 5 157 193
------------- ------------- -----------
Total current assets....................................... 3,827 2,900 1,533
Restricted cash deposit.................................... -- 350 350
Property and equipment, net................................ 466 1,120 1,049
Other assets............................................... 13 86 86
------------- ------------- -----------
Total assets............................................... $ 4,306 $ 4,456 $ 3,018
------------- ------------- -----------
------------- ------------- -----------

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
Accounts payable......................................... $ 115 $ 419 $ 286
Accrued liabilities...................................... 138 356 479
Deferred revenue......................................... 1 342 460
Current portion of borrowings under bank line
of credit.............................................. -- 193 194
Current portion of capital lease obligations............. 11 21 27
------------- ------------- -----------
Total current liabilities.................................. 265 1,331 1,446
Borrowings under bank line of credit....................... -- 97 48
Capital lease obligations.................................. 24 19 13
Other liabilities.......................................... 100 71 125
------------- ------------- -----------
Total liabilities.......................................... 389 1,518 1,632
Commitments
Redeemable convertible preferred stock, $0.001 par value,
issuable in series:
Authorized shares--4,700,000
Issued and outstanding shares--2,250,000 in 1996,
3,678,571 in 1997 and 1998, and none pro forma
(liquidation preference--$8,050)....................... 4,002 8,002 8,002 $ --
Stockholders' equity (deficit):
Convertible preferred stock, $0.001 par value,
Authorized shares--7,000,000 (including 4,700,000
shares designated as redeemable convertible preferred
stock)
Issued and outstanding shares--1,444,681 in 1996,
1,419,681 in 1997 and 1998, and none pro forma
(liquidation preference--$2,413)..................... 2,400 2,355 2,355 --
Common stock, $0.001 par value,
Authorized shares--17,500,000
Issued and outstanding shares--3,985,385 in 1996,
3,986,694 in 1997, 4,146,482 in 1998, and 9,244,734
pro forma............................................ 12 520 866 11,224
Deferred compensation.................................... -- (384) (595) (595)
Accumulated deficit...................................... (2,497) (7,555) (9,242) (9,242)
------------- ------------- ----------- -------------
Total stockholders' equity (deficit)....................... (85) (5,064) (6,616) $ 1,387
------------- ------------- ----------- -------------
-------------
Total liabilities and stockholders' equity (deficit)....... $ 4,306 $ 4,456 $ 3,018
------------- ------------- -----------
------------- ------------- -----------
</TABLE>

See accompanying notes.

F-3
<PAGE>
SCIENTIFIC LEARNING CORPORATION

STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------------
1996 1997
--------- ---------- THREE MONTHS ENDED
MARCH 31,
------------------------
1997 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Programs..................................................... $ -- $ 2,249 $ 28 $ 603
Services..................................................... -- 713 125 44
--------- ---------- ----------- -----------
Total revenues............................................. -- 2,962 153 647

Cost of revenues:
Programs..................................................... -- 481 9 127
Services..................................................... -- 468 56 34
--------- ---------- ----------- -----------
Total cost of revenues..................................... -- 949 65 161
--------- ---------- ----------- -----------
Gross profit................................................... -- 2,013 88 486

Operating expenses:
Sales and marketing.......................................... 164 2,646 289 732
Research and development..................................... 1,514 1,965 360 650
General and administrative................................... 933 2,537 473 811
--------- ---------- ----------- -----------
Total operating expenses................................... 2,611 7,148 1,122 2,193
--------- ---------- ----------- -----------
Operating loss................................................. (2,611) (5,135) (1,034) (1,707)
Interest income, net........................................... 70 162 29 20
Other income (expense), net.................................... 44 (85) -- --
--------- ---------- ----------- -----------
Net loss....................................................... $ (2,497) $(5,058) $ (1,005) $(1,687)
--------- ---------- ----------- -----------
--------- ---------- ----------- -----------
Pro forma basic and diluted net loss per share................. $ (0.60) $ (0.18)
---------- -----------
---------- -----------
Shares used in computing pro forma net loss per share.......... 8,436,444 9,203,468
</TABLE>

See accompanying notes.

F-4
<PAGE>
SCIENTIFIC LEARNING CORPORATION

STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
(DEFICIT)

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY (DEFICIT)
REDEEMABLE -----------------------------------------------------------------------
CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
-------------------- -------------------- -------------------- DEFERRED ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT COMPENSATION DEFICIT
--------- --------- --------- --------- --------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common
stock................... -- $ -- -- $ -- 3,985,385 $ 12 $ -- $ --
Issuance of Series A
preferred stock, net of
issuance costs.......... -- -- 1,247,893 2,046 -- -- -- --
Issuance of Series A
preferred stock in
connection with license
agreement............... -- -- 196,788 354 -- -- -- --
Issuance of Series B
preferred stock, net of
issuance costs.......... 2,250,000 4,002 -- -- -- -- -- --
Net loss.................. -- -- -- -- -- -- -- (2,497)
--------- --------- --------- --------- --------- --------- ------------- ------------
Balances at December 31,
1996.................... 2,250,000 4,002 1,444,681 2,400 3,985,385 12 -- (2,497)
Issuance of common stock
under stock option
plan.................... -- -- -- -- 1,309 -- -- --
Issuance of Series C
preferred stock upon
exercise of warrant, net
of issuance costs....... 1,428,571 4,000 -- -- -- -- -- --
Reduction of Series A
preferred stock issued
in connection with
license agreement....... -- -- (25,000) (45) -- -- -- --
Deferred compensation
related to grant of
stock options........... -- -- -- -- -- 508 (508) --
Amortization of deferred
compensation............ -- -- -- -- -- -- 124 --
Net loss.................. -- -- -- -- -- -- -- (5,058)
--------- --------- --------- --------- --------- --------- ------------- ------------
Balances at December 31,
1997.................... 3,678,571 8,002 1,419,681 2,355 3,986,694 520 (384) (7,555)
Issuance of common stock
under stock option plan
(unaudited)............. -- -- -- -- 159,788 28 -- --
Deferred compensation
related to grant of
stock options
(unaudited)............. -- -- -- -- -- 318 (318) --
Amortization of deferred
compensation
(unaudited)............. -- -- -- -- -- -- 107 --
Net loss (unaudited)...... -- -- -- -- -- -- -- (1,687)
--------- --------- --------- --------- --------- --------- ------------- ------------
Balances at March 31, 1998
(unaudited)............. 3,678,571 $ 8,002 1,419,681 $ 2,355 4,146,482 $ 866 $ (595) $ (9,242)
--------- --------- --------- --------- --------- --------- ------------- ------------
--------- --------- --------- --------- --------- --------- ------------- ------------

<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
(DEFICIT)
--------------
<S> <C>
Issuance of common
stock................... $ 12
Issuance of Series A
preferred stock, net of
issuance costs.......... 2,046
Issuance of Series A
preferred stock in
connection with license
agreement............... 354
Issuance of Series B
preferred stock, net of
issuance costs.......... --
Net loss.................. (2,497)
--------------
Balances at December 31,
1996.................... (85)
Issuance of common stock
under stock option
plan.................... --
Issuance of Series C
preferred stock upon
exercise of warrant, net
of issuance costs....... --
Reduction of Series A
preferred stock issued
in connection with
license agreement....... (45)
Deferred compensation
related to grant of
stock options........... --
Amortization of deferred
compensation............ 124
Net loss.................. (5,058)
--------------
Balances at December 31,
1997.................... (5,064)
Issuance of common stock
under stock option plan
(unaudited)............. 28
Deferred compensation
related to grant of
stock options
(unaudited)............. --
Amortization of deferred
compensation
(unaudited)............. 107
Net loss (unaudited)...... (1,687)
--------------
Balances at March 31, 1998
(unaudited)............. $ (6,616)
--------------
--------------
</TABLE>

See accompanying notes.

F-5
<PAGE>
SCIENTIFIC LEARNING CORPORATION

STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------
1996 1997
--------- --------- THREE MONTHS ENDED
MARCH 31,
------------------------
1997 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.......................................................... $ (2,497) $ (5,058) $ (1,005) $ (1,687)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization................................... 77 326 51 117
Loss on disposal of property and equipment...................... -- 85 -- --
Preferred stock issued in connection with license agreement..... 354 (45) (45) --
Amortization of deferred compensation........................... -- 124 3 107
Changes in operating assets and liabilities:
Accounts receivable........................................... -- (44) (7) (12)
Prepaid expenses and other assets............................. (18) (225) (18) (36)
Accounts payable.............................................. 115 304 262 (133)
Accrued liabilities........................................... 138 218 8 123
Deferred revenue.............................................. 1 341 81 118
Other liabilities............................................. 100 (29) -- 54
--------- --------- ----------- -----------
Net cash used in operating activities........................... (1,730) (4,003) (670) (1,349)
INVESTING ACTIVITIES
Restricted cash deposit......................................... -- (350) -- --
Purchase of property and equipment, net......................... (506) (1,045) (198) (39)
--------- --------- ----------- -----------
Net cash used in investing activities........................... (506) (1,395) (198) (39)
FINANCING ACTIVITIES
Proceeds from issuance of preferred stock....................... 6,048 4,000 -- --
Proceeds from issuance of common stock.......................... 12 -- -- 28
Borrowings under bank line of credit............................ -- 355 -- --
Repayments of borrowings under bank line of credit.............. -- (65) -- (49)
Repayments of capital lease obligations......................... (2) (15) (3) (6)
--------- --------- ----------- -----------
Net cash provided by (used in) financing activities............. 6,058 4,275 (3) (27)
--------- --------- ----------- -----------
Increase (decrease) in cash and cash equivalents................ 3,822 (1,123) (871) (1,415)
Cash and cash equivalents at beginning of period................ -- 3,822 3,822 2,699
--------- --------- ----------- -----------
Cash and cash equivalents at end of period...................... $ 3,822 $ 2,699 $ 2,951 $ 1,284
--------- --------- ----------- -----------
--------- --------- ----------- -----------
SUPPLEMENTAL DISCLOSURE:
Interest paid................................................... $ 1 $ 32 $ 1 $ 10
--------- --------- ----------- -----------
--------- --------- ----------- -----------
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Capital lease obligations incurred.............................. $ 37 $ 20 $ -- $ 6
--------- --------- ----------- -----------
--------- --------- ----------- -----------
</TABLE>

See accompanying notes.

F-6
<PAGE>
SCIENTIFIC LEARNING CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

Scientific Learning Corporation (the "Company") was incorporated on November
30, 1995 in the State of California and was reincorporated on May 2, 1997 in the
State of Delaware. The Company commenced operations in February 1996. The
Company develops, markets, and sells neuroscience-based education and training
programs designed to increase human learning and performance. The Company's
revenues have been derived primarily from one product, Fast ForWord, which is an
intensive, computer-based training program that focuses on improving receptive
and expressive communication skills in children with language-based learning
problems. Delivered through a variety of distribution channels, including public
schools, speech and language professionals in private practice and
Company-operated Learning Centers, Fast ForWord is designed to support teachers,
speech and language professionals, parents and other learning facilitators in
providing a program that can be integrated with school curricula and other
language programs to assist children in overcoming language-based learning
challenges. The Company was in the development stage during 1996.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

INTERIM FINANCIAL INFORMATION

The interim financial information as of March 31, 1998 and for the three
months ended March 31, 1997 and 1998 is unaudited but includes all adjustments,
consisting only of normal recurring adjustments, that the Company considers
necessary for a fair presentation of its financial position at such date and its
results of operations and cash flows for those periods. Operating results for
the three months ended March 31, 1998 are not necessarily indicative of results
that may be expected for any future periods.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of cash and highly liquid short-term
investments with original maturities of three months or less.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets which
range from three to five years.

SOFTWARE DEVELOPMENT COSTS

The Company accounts for software development costs in accordance with
Statement of Financial Accounting Standards ("FAS") No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed," under
which certain software development costs incurred subsequent to the
establishment of technological feasibility are capitalized and amortized over
the estimated lives of the related products. Technological feasibility is
established upon completion of a working version. Through March 31, 1998, such
capitalizable software development costs have been insignificant and all such
costs have been charged to research and development expense.

F-7
<PAGE>
SCIENTIFIC LEARNING CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

ACCOUNTING FOR STOCK-BASED COMPENSATION

The Company accounts for employee stock options using the intrinsic value
method in accordance with Accounting Principles Board Opinion No. 25 ("APB 25")
and makes the pro forma disclosures required by FAS No. 123, "Accounting for
Stock-Based Compensation" ("FAS 123") (Note 5).

REVENUE RECOGNITION

Program revenues are derived from the sale of Fast ForWord programs.
Revenues on sales of Fast ForWord are recognized over the average duration of
the program. Service revenues are derived from the Company's Fast ForWord
training seminars for learning facilitators and from services provided to
customers of the Company's Learning Centers. Revenues from seminars are
recognized when the seminar is held. Revenues from Learning Center services are
recognized over the average duration of the program. The Company only recently
began its Learning Center operations and revenues through March 31, 1998 have
been minimal.

ADVERTISING

Advertising costs are expensed as incurred. Advertising expense was $342,000
for the year ended December 31, 1997 (none for 1996).

INCOME TAXES

The Company uses the liability method to account for income taxes as
required by FAS No. 109, "Accounting for Income Taxes." Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities. Deferred tax assets
and liabilities are measured suing enacted tax rates and laws that will be in
effect when the differences are expected to reverse.

COMPREHENSIVE INCOME

In June 1997, the Financial Accounting Standards Board issued FAS No. 130,
"Reporting Comprehensive Income" ("FAS 130"), which established new standards
for reporting and displaying comprehensive income and its components in a full
set of general purpose financial statements. There is no difference in the
Company's historical net losses as reported and the comprehensive net losses
under the provisions of FAS 130 for all periods presented. Accordingly, the
adoption of FAS 130 had no effect on the Company's reported results of
operations.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARD

In June 1997, the Financial Accounting Standards Board issued FAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("FAS
131"). FAS 131 will change the way companies report selected segment information
in interim financial reports to shareholders. FAS 131 is effective for the
Company's financial statements for the year ending December 31, 1998. The
Company has not reached a conclusion as to the appropriate segments, if any, it
will be required to report to comply with the provisions of FAS 131.

F-8
<PAGE>
SCIENTIFIC LEARNING CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET LOSS PER SHARE

Net loss per share is presented under the requirements of FAS No. 128,
"Earnings per Share" ("FAS 128") which replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants, and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. Net loss per share amounts for all periods have been
presented to conform to FAS 128 requirements. Potentially dilutive securities
have been excluded from the computation as their effect is antidilutive.

PRO FORMA NET LOSS PER SHARE

Pro forma net loss per share has been computed as described above and also
gives effect, under Securities and Exchange Commission guidance, to the
conversion of preferred shares not included above that will automatically
convert upon completion of the Company's initial offering, using the
if-converted method (Note 5).

The calculation of historical and pro forma basic and diluted net loss per
share is as follows (in thousands, except share and per share amounts):

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------------
1996 1997
---------- ---------- THREE MONTHS ENDED
MARCH 31,
------------------------
1997 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Historical:
Net loss................................................... $(2,497) $(5,058) $(1,005) $(1,687)
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Weighted average shares of common stock outstanding used in
computing basic and diluted net per loss share........... 3,678,931 3,985,833 3,985,388 4,105,216
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Basic and diluted net loss per share....................... $ (0.68) $ (1.27) $ (0.25) $ (0.41)
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Pro forma:
Net loss................................................... $(2,497) $(5,058) $(1,005) $(1,687)
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Shares used in computing basic and diluted net loss per
share (from above)....................................... 3,678,931 3,985,833 3,985,388 4,105,216
Adjustment to reflect the effect of the assumed conversion
of preferred stock from the date of issuance............. 4,450,611 5,098,252
---------- -----------
Weighted average shares used in computing pro forma basic
and diluted net per loss share........................... 8,436,444 9,203,468
---------- -----------
---------- -----------
Pro forma basic and diluted net loss per share............. $ (0.60) $ (0.18)
---------- -----------
---------- -----------
</TABLE>

F-9
<PAGE>
SCIENTIFIC LEARNING CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

PRO FORMA NET LOSS PER SHARE (CONTINUED)

If the Company had reported net income, the calculation of diluted earnings
per share (historical and pro forma) would have included the shares used in the
computation of pro forma net loss per share as well as an additional
approximately 36,017, 1,359,459, 1,074,114, and 1,433,854 common equivalent
shares related to the outstanding options and warrants not included above
(determined using the treasury stock method at the estimated fair value) for the
years ended December 31, 1996 and 1997 and for the three months ended March 31,
1997 and 1998, respectively.

2. PROPERTY AND EQUIPMENT

Property and equipment consists of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Computer equipment............................................................................. $ 425 $ 1,168
Office furniture and equipment................................................................. 103 300
Leasehold improvements......................................................................... 15 21
--------- ---------
543 1,489
Less accumulated depreciation.................................................................. 77 369
--------- ---------
$ 466 $ 1,120
--------- ---------
--------- ---------
</TABLE>

3. BANK LINE OF CREDIT

The Company has a $400,000 line of credit with a bank which expires in June
1998. Borrowings under the line of credit can be used as working capital or to
finance equipment purchases. Borrowings under the line of credit bear interest
at the bank's prime rate plus 3% (11.5% at December 31, 1997) and are secured by
substantially all of the Company's assets, excluding intellectual property. At
December 31, 1997, the Company had outstanding borrowings in the amount of
$290,000 which had been used to finance equipment purchases and which is being
repaid in equal monthly installments through June 1999. The agreement restricts
the Company's payment of dividends.

In September 1997, the Company obtained a $350,000 irrevocable standby
letter of credit as security for the lease agreement covering its corporate
office facility. A $350,000 certificate of deposit has been pledged as
collateral for the standby letter of credit. The standby letter of credit is
reduced annually by $70,000 provided that there have been no events of default
under the lease agreement. The amount of the letter of credit can be further
reduced if certain financial covenants, as specified in the lease agreement, are
met.

4. INCOME TAXES

At December 31, 1997, the Company had net operating loss carryforwards and
research credit carryforwards for federal income tax purposes of approximately
$6,600,000 and $85,000, respectively. The net operating loss carryforward will
expire in years 2011 through 2012. Utilization of the net operating losses may
be subject to a substantial annual limitation, due to the ownership change
limitations provided

F-10
<PAGE>
SCIENTIFIC LEARNING CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

4. INCOME TAXES (CONTINUED)
by the Internal Revenue Code of 1986. The annual limitation may result in the
expiration of net operating losses before utilization.

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets are as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................................................... $ 768 $ 2,668
Research credit carryforwards.............................................................. 41 110
Other...................................................................................... 217 254
--------- ---------
Total deferred tax assets.................................................................... 1,026 3,032
Valuation allowance.......................................................................... (1,026) (3,032)
--------- ---------
Net deferred tax assets...................................................................... $ -- $ --
--------- ---------
--------- ---------
</TABLE>

Realization of deferred tax assets is dependent upon future earnings, if
any, the timing and amount of which are uncertain. Accordingly, the net deferred
tax assets have been fully offset by a valuation allowance. The valuation
allowance increased by $1,026,000 and $2,006,000 during the years ended December
31, 1996 and 1997, respectively.

5. STOCKHOLDERS' EQUITY

PREFERRED STOCK

Preferred Stock at December 31, 1996 and 1997 and March 31, 1998 is as
follows by series:

<TABLE>
<CAPTION>
SHARES ISSUED AND OUTSTANDING
-----------------------------------
DECEMBER 31,
DESIGNATED ----------------------
SERIES SHARES 1996 1997
- ----------------------------------------------------------------- ------------ ---------- ----------
MARCH 31,
1998
-----------
(UNAUDITED)
-----------
<S> <C> <C> <C> <C> <C>
A Convertible......................................... 1,500,000 1,444,681 1,419,681 1,419,681
B Redeemable convertible.............................. 2,900,000 2,250,000 2,250,000 2,250,000
C Redeemable convertible.............................. 1,800,000 -- 1,428,571 1,428,571
------------ ---------- ---------- -----------
6,200,000 3,694,681 5,098,252 5,098,252
------------ ---------- ---------- -----------
------------ ---------- ---------- -----------
</TABLE>

Each share of preferred stock is convertible into one share of common stock
subject to antidilution provisions. Automatic conversion will occur upon
completion of an initial public offering of the Company's common stock with
proceeds of a minimum of $7.5 million at a minimum price of $8.80 per common
share. The voting rights of preferred stock are equivalent to the voting rights
of common stock into which it is convertible. Dividends on preferred stock are
non-cumulative but fully participating with any cash dividends declared on
common stock. Dividends on Series A, Series B, and Series C preferred stock are
payable in cash in the amount of $.12, $.126 and $.196 per share per annum as
adjusted for any stock dividends, combinations or splits with respect to such
shares, respectively, when and if declared by the

F-11
<PAGE>
SCIENTIFIC LEARNING CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5. STOCKHOLDERS' EQUITY (CONTINUED)

PREFERRED STOCK (CONTINUED)

Board of Directors. No such dividends have been declared as of December 31,
1997. The Series B and C preferred stock have stated redemption values of $1.80
and $2.80 per share, respectively. Series B and C preferred stock are
mandatorily redeemable at their stated redemption values ten years after
issuance.

COMMON STOCK

At December 31, 1997 the Company had reserved shares of common stock for
future issuance as follows:

<TABLE>
<CAPTION>
<S> <C>
Stock Option Plan:
Options outstanding............................................................................... 1,562,087
Options available for future grants............................................................... 686,379
Convertible preferred stock......................................................................... 5,098,252
------------
7,346,718
------------
------------
</TABLE>

STOCK OPTIONS

Under the Company's Stock Option Plan, 2,250,000 shares of common stock were
reserved for the issuance of incentive stock options (ISO) or non-statutory
stock options (NSO) to eligible participants. The ISOs may be granted at a price
per share not less than the fair market value at the date of grant. The NSOs may
be granted at a price per share not less than 85% of the fair market value at
the date of grant. Options granted generally vest over a period of up to five
years, with a maximum term of ten years. Common shares purchased under the plan
are subject to certain restrictions, including the right of first refusal by the
Company for sale or transfer of these shares to outside parties. The Company's
right of first refusal terminates upon completion of an initial public offering
of common stock.

F-12
<PAGE>
SCIENTIFIC LEARNING CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5. STOCKHOLDERS' EQUITY (CONTINUED)

STOCK OPTIONS (CONTINUED)

A summary of the Company's stock option activity under the plan for the
years ended December 31, 1996 and 1997 and the three months ended March 31, 1998
is as follows:

<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
---------------------------
WEIGHTED
AVERAGE
NUMBER OF EXERCISE PRICE
SHARES PER SHARE
---------- ---------------
<S> <C> <C>
Granted......................................................... 1,464,887 $ 0.18
Exercised....................................................... (225) 0.17
Canceled........................................................ (6,675) 0.17
---------- -----
Outstanding at December 31, 1996.................................. 1,457,987 0.18
Granted......................................................... 348,875 0.37
Exercised....................................................... (1,309) 0.17
Canceled........................................................ (243,466) 0.19
---------- -----
Outstanding at December 31, 1997.................................. 1,562,087 0.21
Granted (unaudited)............................................. 86,325 0.50
Exercised (unaudited)........................................... (159,788) 0.17
Canceled (unaudited)............................................ (15,664) 0.40
---------- -----
Outstanding at March 31, 1998 (unaudited)......................... 1,472,960 $ 0.19
---------- -----
---------- -----
Exercisable at December 31, 1997.................................. 587,300 $ 0.20
---------- -----
---------- -----
Exercisable at March 31, 1998 (unaudited)......................... 525,049 $ 0.21
---------- -----
---------- -----
</TABLE>

The following table summarizes information concerning outstanding and
exercisable stock options at December 31, 1997:

<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
---------------------------------------- ------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE REMAINING EXERCISE
NUMBER OF PRICE CONTRACTUAL NUMBER OF PRICE
EXERCISE PRICE SHARES PER SHARE LIFE (YEARS) SHARES PER SHARE
- -------------------------------- ---------- ----------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$0.17-$0.20..................... 1,299,812 $ 0.17 8.5 532,819 $ 0.18
$0.40-$0.44..................... 262,275 $ 0.41 9.6 54,481 $ 0.44
---------- -----------
1,562,087 587,300
---------- -----------
---------- -----------
</TABLE>

The Company recorded deferred compensation of $508,000 during the year ended
December 31, 1997 and $318,000 during the three months ended March 31, 1998
representing the difference between the exercise price and the deemed fair value
of certain of the Company's stock options granted to employees. These amounts
are being amortized by charges to operations over the vesting periods of the
individual stock options. Such amortization amounted to $124,000 for the year
ended December 31, 1997 and $107,000 for the three months ended March 31, 1998.

F-13
<PAGE>
SCIENTIFIC LEARNING CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5. STOCKHOLDERS' EQUITY (CONTINUED)
PRO FORMA DISCLOSURES OF THE EFFECT OF STOCK BASED COMPENSATION

Pro forma information regarding results of operations and net loss per share
is required by FAS 123, which also requires that the information be determined
as if the Company had accounted for its employee stock options under the fair
value method of FAS 123. The fair value for these options was estimated at the
date of grant using the minimum value method with the following weighted average
assumptions: a risk-free interest rate of 6.5% and 6.3% for the years ended
December 31, 1996 and 1997, respectively, no dividend yield or volatility
factors of the expected market price of the Company's common stock, and a
weighted average expected life of the option of 5.2 years.

The option valuation models were developed for use in estimating the fair
value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected life of the option. Because the
Company's employee stock options have characteristics significantly different
from those of traded options and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.

Had compensation cost for the Company's stock-based compensation plans been
determined using the fair value at the grant dates for awards under those plans
calculated using the minimum value method of FAS 123, the Company's net loss and
pro forma basic and diluted net loss per share would have been increased to the
pro forma amounts indicated below:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Pro forma net loss (in thousands)........................................ $ (2,506) $ (5,092)
--------- ---------
--------- ---------
Pro forma basic and diluted net loss per share........................... $ (0.60)
---------
---------
</TABLE>

The weighted average fair value of options granted, which is the value
assigned to the options under FAS 123, was $0.04 and $0.83 for options granted
during the years ended December 31, 1996 and 1997, respectively.

The pro forma impact of options on the net loss for the years ended December
31, 1996 and 1997 is not representative of the effects on net income (loss) for
future years, as future years will include the effects of additional years of
stock option grants.

6. COMMITMENTS

LEASES

The Company leases equipment and its corporate office facility under
non-cancelable capital and operating leases, with initial terms in excess of one
year. At December 31, 1996 and 1997, the cost of equipment under capital leases
is approximately $37,000 and $57,000, respectively, with the related

F-14
<PAGE>
SCIENTIFIC LEARNING CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

6. COMMITMENTS (CONTINUED)

LEASES (CONTINUED)
amortization included in depreciation expense. Future minimum payments under
these leases as of December 31, 1997 are as follows (in thousands):

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
----------- -----------
<S> <C> <C>
1998..................................................................... $ 25 $ 747
1999..................................................................... 20 897
2000..................................................................... -- 939
2001..................................................................... -- 980
2002..................................................................... -- 671
--- -----------
Total minimum lease payments............................................. 45 $ 4,234
-----------
-----------
Less amount representing interest........................................ (5)
---
Present value of minimum lease payments.................................. 40
Less amount due within one year.......................................... 21
---
$ 19
---
---
</TABLE>

Rent expense under all operating leases was $67,000 and $418,000 for the
years ended December 31, 1996 and 1997, respectively.

The Company has the option to extend the operating lease covering its
corporate office facility for an additional five years at the end of the lease
term, provided that certain conditions of the lease agreement are met.

LICENSE AGREEMENT

In 1996, the Company entered into a license agreement with a university for
the use of the intellectual property underlying its training methods. In
exchange for the license, the Company issued 196,788 shares of Series A
preferred stock and agreed to pay the university a license-issue fee of
$200,000, of which $100,000 has been paid as of December 31, 1997. In March
1997, the number of shares of Series A preferred stock issued under the
agreement was reduced to 171,788.

Under the agreement, additional royalties and milestone payments are payable
to the university based upon revenues from products using the licensed
technology. Royalty and milestone expenses were $202,000 for the year ended
December 31, 1997 (none in 1996) and are included in cost of revenues.

7. EMPLOYEE RETIREMENT AND BENEFIT PLAN

The Company has a defined contribution retirement plan under Section 401(k)
of the Internal Revenue Code which covers substantially all employees. Eligible
employees may contribute amounts to the plan, via payroll withholding, subject
to certain limitations. The Company does not match contributions by plan
participants.

F-15
<PAGE>
SCIENTIFIC LEARNING CORPORATION

NOTES TO FINANCIAL STATEMENTS

8. SUBSEQUENT EVENTS (UNAUDITED)

PROPOSED PUBLIC OFFERING OF COMMON STOCK

On June 6, 1998, the Board of Directors authorized the Company to proceed
with an initial public offering of its common stock. If the offering is
consummated as presently anticipated, all of the outstanding preferred stock
will automatically convert into common stock. The unaudited pro forma
stockholders' equity (deficit) at March 31, 1998 gives effect to the conversion
of all outstanding shares of convertible preferred stock at that date into
5,098,252 shares of common stock upon the completion of the offering.

STOCK SPLIT

On June 6, 1998, the Board of Directors approved, subject to stockholder
approval, a one-for-two reverse stock split of issued and outstanding common and
preferred stock. All common and preferred share prices, and amounts associated
with rights, preferences, dividends and priviliges in the accompanying financial
statements have been retroactively adjusted to reflect the stock split. In
addition, the Board of Directors authorized an increase in the number of
authorized shares of common stock to 50,000,000 and a decrease in the number of
authorized shares of preferred stock to 1,000,000 shares, subject to stockholder
approval.

1998 EQUITY INCENTIVE PLAN

On June 6, 1998, the Company's Board of Directors adopted, subject to
stockholder approval, the 1998 Equity Incentive Plan which amends and restates
the Company's existing stock option plan. There are 2,800,000 shares of common
stock authorized for issuance under the plan. The plan will become effective
upon completion of the Company's initial public offering of its common stock.

1998 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN

On June 6, 1998, the Company's Board of Directors adopted, subject to
stockholder approval, the 1998 Non-Employee Directors' Stock Option Plan and
reserved an aggregate of 100,000 shares of common stock for grants of stock
options under such plan.

1998 EMPLOYEE STOCK PURCHASE PLAN

The Company's 1998 Employee Stock Purchase Plan was adopted by the Board of
Directors on June 6, 1998 to be effective upon the completion of the Company's
initial public offering of its common stock, subject to stockholder approval.
The Company has reserved a total of 500,000 shares of common stock for issuance
under the plan. Eligible employees may purchase common stock at 85% of the
lesser of the fair market value of the Company's common stock on the first day
of the applicable one year offering period or the last day of the applicable six
month purchase period.

BANK LINES OF CREDIT

In February 1998, the Company entered into an additional line of credit with
a bank which provides for borrowings of up to $450,000 to finance equipment
purchases through August 1998. Borrowings are due in monthly installments
through August 2000 plus interest at the bank's prime rate plus 3% and are
secured by substantially all of the Company's assets, excluding intellectual
property.

F-16
<PAGE>
SCIENTIFIC LEARNING CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

8. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
BANK LINES OF CREDIT (CONTINUED)

In June 1998, the Company obtained a $3 million unsecured line of credit
from another bank. Borrowings under the line of credit bear interest, at the
election of the Company, at the bank's base rate or the adjusted LIBOR plus
1.75% and are due in May 1999. Borrowings are guaranteed by a significant
preferred stockholder of the Company. In connection with such guarantee, the
Company issued to the stockholder warrants to purchase 100,000 shares of the
Company's Common Stock at $6.00 per share. Such warrants expire on May 31, 2003.
Additionally, the stockholder agreed to purchase up to 500,000 shares of the
Company's preferred stock at $6.00 per share if requested by the Company. The
Company's right to require the stockholder to purchase such securities expires
upon the closing of an initial public offering of the Company's Common Stock.

F-17
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER, OR THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER
TO BUY ANY SECURITIES OTHER THAN THE SHARES OF COMMON STOCK TO WHICH IT RELATES
OR AN OFFER TO, OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH
AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR
THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.

-------------------------
TABLE OF CONTENTS
-------------------------

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY............................. 3
RISK FACTORS................................... 7
USE OF PROCEEDS................................ 16
DIVIDEND POLICY................................ 16
CAPITALIZATION................................. 17
DILUTION....................................... 18
SELECTED FINANCIAL DATA........................ 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS................................... 20
BUSINESS....................................... 25
MANAGEMENT..................................... 39
CERTAIN TRANSACTIONS........................... 50
PRINCIPAL AND SELLING STOCKHOLDERS............. 52
DESCRIPTION OF CAPITAL STOCK................... 54
SHARES ELIGIBLE FOR FUTURE SALE................ 56
UNDERWRITING................................... 58
LEGAL MATTERS.................................. 59
EXPERTS........................................ 60
ADDITIONAL INFORMATION......................... 60
INDEX TO FINANCIAL STATEMENTS.................. F-1
</TABLE>

UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES OFFERED HEREBY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

[LOGO]

COMMON STOCK

---------------
PROSPECTUS
---------------

NationsBanc Montgomery
Securities LLC

BancAmerica Robertson Stephens

Pacific Growth Equities, Inc.

, 1998

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of the Common Stock being registered. All the amounts shown are estimates except
for the registration fee and the NASD filing fee.

<TABLE>
<S> <C>
Registration fee................................................... $ 10,178
NASD filing fee.................................................... 3,950
Nasdaq application fee............................................. 1,000
Blue sky qualification fee and expenses............................ 5,000
Printing and engraving expenses.................................... *
Legal fees and expenses............................................ *
Accounting fees and expenses....................................... *
Transfer agent and registrar fees.................................. *
Miscellaneous...................................................... *
---------
Total.......................................................... $ *
---------
---------
</TABLE>

- ------------------------

* To be provided by amendment.

ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.

Under Section 145 of the Delaware General Corporation Law, the Company has
broad powers to indemnify its directors and officers against liabilities they
may incur in such capacities, including liabilities under the Securities Act of
1933, as amended (the "Securities Act"). The Company's Bylaws also provide that
the Company will indemnify its directors and executive officers and may
indemnify its other officers, employees and other agents to the fullest extent
not prohibited by Delaware law.

The Company's Certificate of Incorporation provides for the elimination of
liability for monetary damages for breach of the directors' fiduciary duty of
care to the Company and its stockholders. These provisions do not eliminate the
directors' duty of care and, in appropriate circumstances, equitable remedies
such as injunctive or other forms of non-monetary relief will remain available
under Delaware law. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to the Company, for acts
or omissions not in good faith or involving intentional misconduct, for knowing
violations of law, for any transaction from which the director derived an
improper personal benefit and for payment of dividends or approval of stock
repurchases or redemptions that are unlawful under Delaware law. These
provisions do not affect a director's responsibilities under any other laws,
such as the federal securities laws or state or federal environmental laws.

The Company has entered into agreements with its directors and executive
officers that require the Company to indemnify such persons against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
(including expenses of a derivative action) in connection with any proceeding,
whether actual or threatened, to which any such person may be made a party by
reason of the fact that such person is or was a director or officer of the
Company or any of its affiliated enterprises, provided such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of the Company and, with respect to any criminal proceeding,
had no reasonable cause to believe his or her conduct was unlawful. The
indemnification agreements also set forth certain procedures that will apply in
the event of a claim for indemnification thereunder.

II-1
<PAGE>
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Company and
its officers and directors for certain liabilities arising under the Securities
Act or otherwise.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

Since its incorporation on November 30, 1995, the Company has sold and
issued the following unregistered securities:

1. From January 1996 to June 1996, the Company issued and sold an aggregate
of 3,985,161 shares of Common Stock at prices ranging from $0.0008 to
$0.17 per share to seven executive officers and directors, 185,175 of
which are currently held by one individual who is no longer associated
with the Company.

2. In April 1996, the Company issued and sold an aggregate of 104,937
shares of Series A Preferred Stock at $1.62 per share to four executive
officers and directors pursuant to its Series A Preferred Stock Employee
Purchase Plan, 12,345 of which are currently held by one individual who
is no longer associated with the Company.

3. From April 1996 to May 1996, the Company issued and sold and aggregate
of 1,142,956 shares of Series A Preferred Stock at $1.70 per share to 68
investors, 24,412 of which were sold to Dr. Schleifer, a member of the
Board of Directors of the Company.

4. On September 27, 1996, the Company issued 196,788 shares of Series A
Preferred Stock to Rutgers University in partial payment of a license
fee. On March 28, 1997, Rutgers University returned 25,000 shares to the
Company.

5. From October 1996 to November 1996, the Company issued and sold and
aggregate of 2,250,000 shares of Series B Preferred Stock at $1.80 per
share to two investors, 2,222,222 of which were sold to Ventures, an
affiliate of the Company.

6. On October 1, 1996 the Company issued a warrant to purchase 1,428,571
shares of Series C Preferred Stock at an exercise price of $2.80 per
share to Ventures, an affiliate of the Company. This warrant was
subsequently exercised on June 16, 1997 and the 1,428,571 shares were
issued to the affiliate.

7. Since inception, the Company has granted stock options under its Stock
Option Plan covering an aggregate of 1,701,598 shares of the Company's
Common Stock (net of expirations and cancellations) at exercise prices
ranging from $0.17 to $1.50 per share.

8. Since inception, options to purchase an aggregate of 162,340 shares of
the Company's Common Stock were exercised for an aggregate purchase price
of $28,163.24 at exercise prices ranging from $0.17 to $0.50 per share.

9. In June 1998, the Company issued to Ventures, an affiliate of the
Company, warrants to purchase 100,000 shares of the Company's Common
Stock. These warrants were issued in connection with Ventures' guarantee
of a $3 million unsecured line of credit obtained by the Company in June
1998.

The sales and issuances of securities in the transactions described in
paragraphs 1 through 6 and 9 above were deemed to be exempt from registration
under the Securities Act by virtue of Section 4(2) or Regulation D promulgated
under the Securities Act. The purchasers in each case represented their
intention to acquire the securities for investment only and not with a view to
the distribution thereof. Appropriate legends are affixed to the stock
certificates issued in such transactions. Similar legends were imposed in
connection with any subsequent sales of any such securities. All recipients
either received

II-2
<PAGE>
adequate information about the Company or had access, through employment or
other relationships, to such information.

The sales and issuances of securities in the transactions described in
paragraphs 1, 2, 7 and 8 above were deemed to be exempt from registration under
the Securities Act by virtue of Rule 701 promulgated thereunder in that they
were offered and sold either pursuant to written compensatory benefit plans or
pursuant to a written contract relating to compensation, as provided by Rule
701.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(A) EXHIBITS.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ --------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement.

3.1 Amended and Restated Certificate of Incorporation of the Company.

3.2 Bylaws of the Company.

3.3 Form of Restated Certificate of Incorporation of the Company to be filed
upon completion of this Offering.

3.4 Form of Amended and Restated Bylaws of the Company to be effective upon
the closing of this Offering.

4.1 Reference is made to Exhibits 3.1 through 3.4.

4.2 Registration Rights Agreement among the Company and the parties indicated
therein, dated as of October 1, 1996, as amended on November 14, 1996.

4.3* Specimen stock certificate.

5.1* Opinion of Cooley Godward LLP as to the legality of the securities being
registered.

10.1 Form of Indemnity Agreement between the Company and each its directors and
executive officers, with related schedules.

10.2 1998 Equity Incentive Plan (the "Incentive Plan").

10.3 Form of Stock Option Agreement under the Incentive Plan.

10.4 Form of Stock Option Grant Notice under the Incentive Plan.

10.5 1998 Non-Employee Directors' Stock Option Plan ("Directors' Plan").

10.6 Form of Nonstatutory Stock Option Agreement under the Directors' Plan
(Initial Grant).

10.7 Form of Nonstatutory Stock Option Agreement under the Directors' Plan
(Annual Grant).

10.8* 1998 Employee Stock Purchase Plan ("ESP Plan").

10.9* Form of Employee Stock Purchase Plan Offering under the ESP Plan.

10.10 Letter agreement, dated as of October 31, 1996, between Sheryle J. Bolton
and the Company.

10.11 Consulting Agreement, dated as of September 20, 1996, between Dr. Michael
M. Merzenich and the Company, as modified on January 19, 1998.

10.12 Consulting Agreement, dated as of September 19, 1996, between Dr. Paula A.
Tallal and the Company, as modified on January 22, 1998.

10.13** Exclusive License Agreement, dated September 27, 1996, between the Company
and the Regents of the University of California.
</TABLE>

II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ --------------------------------------------------------------------------
<C> <S>
10.14 Loan and Security Agreement, dated as of February 13, 1998, between the
Company and Silicon Valley Bank.

10.15 Revolving Loan Agreement, dated as of June 4, 1998, between the Company
and BankBoston, N.A.

10.16 Lease Agreement, dated as of July 31, 1997, between the Company and
GBC-University Associates, L.P.

23.1 Consent of Ernst & Young LLP, Independent Auditors. Reference is made to
page II-7.

23.2* Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.

24.1 Power of Attorney. Reference is made to page II-5.

27.1 Financial Data Schedule.
</TABLE>

- ------------------------

* To be filed by amendment.

** The Company has sought confidential treatment pursuant to Rule 406 for
portions of the referenced exhibit.

(B) FINANCIAL STATEMENT SCHEDULES.

All financial statement schedules are omitted because the information called
for is not required, is not applicable, or is shown either in the financial
statements or notes thereto.

ITEM 17. UNDERTAKINGS.

The Company hereby undertakes to provide at the closing, to the Underwriters
specified in the Underwriting Agreement, certificates in such denominations and
registered in such names as required by the Underwriters permitting prompt
delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the Company
pursuant to the provisions described in Item 14 or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefor, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer, or controlling person of the Company in
the successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

The Company undertakes that: (1) for purposes of determining any liability
under the Securities Act, the information omitted from the form of prospectus as
filed as part of the registration statement in reliance upon Rule 430A and
contained in the form of prospectus filed by the Company pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part
of the registration statement as of the time it was declared effective, and (2)
for the purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
BONA FIDE offering thereof.

II-4
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Company has
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Berkeley, County of
Alameda, State of California, on the 10th day of June, 1998.

<TABLE>
<S> <C> <C>
SCIENTIFIC LEARNING CORPORATION

By: /s/ SHERYLE J. BOLTON
-----------------------------------------
Sheryle J. Bolton
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
DIRECTOR
</TABLE>

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints Sheryle
J. Bolton and Frank M. Mattson his or her true and lawful attorney-in-fact and
agent, each acting alone, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any and all
capacities, to sign any or all amendments (including post-effective amendments)
to the Registration Statement on Form S-1, and to sign any registration
statement filed under Rule 462 under the Securities Act of 1993 including
post-effective amendments thereto, and to file the same, with all exhibits
thereto, and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, each acting alone, or his
or her substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------

<C> <S> <C>
President, Chief Executive
/s/ SHERYLE J. BOLTON Officer and Director
- ------------------------------ (PRINCIPAL EXECUTIVE June 10, 1998
Sheryle J. Bolton OFFICER)

/s/ DR. MICHAEL M. MERZENICH
- ------------------------------ Chief Scientific Officer June 10, 1998
Dr. Michael M. Merzenich and Director

/s/ DR. PAULA A. TALLAL Executive Vice President
- ------------------------------ and Chairman of the June 10, 1998
Dr. Paula A. Tallal Board
</TABLE>

II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------

<C> <S> <C>
Chief Financial Officer,
/s/ FRANK M. MATTSON Vice President, Finance
- ------------------------------ and Secretary (PRINCIPAL June 10, 1998
Frank M. Mattson FINANCIAL AND ACCOUNTING
OFFICER)

/s/ CARLETON A. HOLSTROM
- ------------------------------ Director June 10, 1998
Carleton A. Holstrom

/s/ DR. LEONARD S. SCHLEIFER
- ------------------------------ Director June 10, 1998
Dr. Leonard S. Schleifer

/s/ RODMAN W. MOORHEAD, III
- ------------------------------ Director June 10, 1998
Rodman W. Moorhead, III

/s/ JAMES E. THOMAS
- ------------------------------ Director June 10, 1998
James E. Thomas
</TABLE>

II-6
<PAGE>
EXHIBIT 23.1

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions "Selected Financial
Data" and "Experts" and to the use of our report dated April 9, 1998 in the
Registration Statement (Form S-1) and related Prospectus of Scientific Learning
Corporation for the registration of 5,000,000 shares of its Common Stock.

ERNST & YOUNG LLP

Walnut Creek, California

June 9, 1998

------------------------

The foregoing consent is in the form that will be signed upon completion of
stockholder approval of the one-for-two reverse stock split and amendment of the
Certificate of Incorporation described in Note 8 to the financial statements.

/S/ ERNST & YOUNG LLP

Walnut Creek, California

June 9, 1998

II-7
<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ --------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of the Company.
3.2 Bylaws of the Company.
3.3 Form of Restated Certificate of Incorporation of the Company to be filed
upon completion of this Offering.
3.4 Form of Amended and Restated Bylaws of the Company to be effective upon
the closing of this Offering.
4.1 Reference is made to Exhibits 3.1 through 3.4.
4.2 Registration Rights Agreement among the Company and the parties indicated
therein, dated as of October 1, 1996, as amended on November 14, 1996.
4.3* Specimen stock certificate.
5.1* Opinion of Cooley Godward LLP as to the legality of the securities being
registered.
10.1 Form of Indemnity Agreement between the Company and each its directors and
executive officers, with related schedules.
10.2 1998 Equity Incentive Plan (the "Incentive Plan").
10.3 Form of Stock Option Agreement under the Incentive Plan.
10.4 Form of Stock Option Grant Notice under the Incentive Plan.
10.5 1998 Non-Employee Directors' Stock Option Plan ("Directors' Plan").
10.6 Form of Nonstatutory Stock Option Agreement under the Directors' Plan
(Initial Grant).
10.7 Form of Nonstatutory Stock Option Agreement under the Directors' Plan
(Annual Grant).
10.8* 1998 Employee Stock Purchase Plan ("ESP Plan").
10.9* Form of Employee Stock Purchase Plan Offering under the ESP Plan.
10.10 Letter agreement, dated as of October 31, 1996, between Sheryle J. Bolton
and the Company.
10.11 Consulting Agreement, dated as of September 20, 1996, between Dr. Michael
M. Merzenich and the Company, as modified on January 19, 1998.
10.12 Consulting Agreement, dated as of September 19, 1996, between Dr. Paula A.
Tallal and the Company, as modified on January 22, 1998.
10.13** Exclusive License Agreement, dated September 27, 1996, between the Company
and the Regents of the University of California.
10.14 Loan and Security Agreement, dated as of February 13, 1998, between the
Company and Silicon Valley Bank.
10.15 Revolving Loan Agreement, dated as of June 4, 1998, between the Company
and BankBoston, N.A.
10.16 Lease Agreement, dated as of July 31, 1997, between the Company and
GBC-University Associates, L.P.
23.1 Consent of Ernst & Young LLP, Independent Auditors. Reference is made to
page II-7.
23.2* Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
24.1 Power of Attorney. Reference is made to page II-5.
27.1 Financial Data Schedule.
</TABLE>

- --------------------------

* To be filed by amendment.

** The Company has sought confidential treatment pursuant to Rule 406 for
portions of the referenced exhibit.

<PAGE>

AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
SCIENTIFIC LEARNING CORPORATION

Sheryle J. Bolton hereby certifies that:

1. The original name of this corporation is Scientific Learning Corporation
and the date of filing the original Certificate of Incorporation of this
corporation with the Secretary of State of the State of Delaware is May 2, 1997.

2. She is the duly elected and acting President and Chief Executive Officer
of this corporation.

3. The Amended and Restated Certificate of Incorporation of this
corporation is hereby amended and restated to read as follows:

"I.

The name of this corporation is Scientific Learning Corporation (the
"Company").

II.

The address of the registered office of the Company in the State of
Delaware is 15 East North Street, City of Dover, County of Kent, and the name of
the registered agent of the Company in the State of Delaware at such address is
Amerisearch Corporate Services, Inc.

III.

The purpose of the Company is to engage in any lawful act or activity for
which a corporation may be organized under the General Corporation Law of the
State of Delaware.

IV.

A. The Company is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the Company is authorized to issue is Forty-One
Million (41,000,000). Thirty-Four Million (34,000,000) shares shall be
Common Stock, each having a par value of one-tenth of one cent ($0.001).
Seven Million (7,000,000) shares shall be Preferred Stock, each having a par
value of one-tenth of one cent ($0.001). Upon filing of this Amended and
Restated Certificate of Incorporation, every two (2) outstanding shares of
Common Stock shall be combined into one (1) share of Common Stock and every
two (2) outstanding shares of Preferred Stock shall be combined into one (1)
share of Preferred Stock.

1.
<PAGE>

B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, within the limitations and
restrictions stated in this Certificate, by filing a certificate pursuant to the
Delaware General Corporation Law, to fix or alter from time to time the
designation, powers, preferences and rights of the shares of each such series
and the qualifications, limitations or restrictions of any wholly unissued
series of Preferred Stock, and to establish from time to time the number of
shares constituting any such series or any of them; and to increase or decrease
the number of shares of any series subsequent to the issuance of shares of that
series, but not below the number of shares of such series then outstanding. In
case the number of shares of any series shall be decreased in accordance with
the foregoing sentence, the shares constituting such decrease shall resume the
status that they had prior to the adoption of the resolution originally fixing
the number of shares of such series.

C. No share or shares of any series of Preferred Stock acquired by the
Company by reason of redemption, purchase, conversion or otherwise shall be
reissued as part of such series, and the Board of Directors is authorized,
pursuant to section 243 of Delaware General Corporation Law, to retire any such
share or shares. The retirement of any such share or shares shall not reduce
the total authorized number of shares of Preferred Stock.

The rights, preferences, privileges and restrictions relating to the Common
Stock and Preferred Stock are as follows:

A. DESIGNATION.

The Preferred Stock shall be divided into series. The first series
shall consist of One Million Five Hundred Thousand (1,500,000) shares and is
designated "Series A Preferred Stock" (the "Series A Preferred"). The second
series shall consist of Two Million Nine Hundred Thousand (2,900,000) shares
and is designated "Series B Preferred Stock" (the "Series B Preferred"). The
third series shall consist of One Million Eight Hundred Thousand (1,800,000)
shares and is designated "Series C Preferred Stock" (the "Series C
Preferred"). The Series A Preferred, Series B Preferred and Series C
Preferred shall be referred to collectively herein as the "Preferred."

B. DIVIDEND RIGHTS.

1. Holders of Series A Preferred, Series B Preferred and Series C
Preferred, in preference to the holders of any other stock of the Company
("Junior Stock"), shall be entitled to receive, when and as declared by the
Board of Directors, but only out of funds that are legally available
therefor, cash dividends at the rate of Twelve Cents ($0.12), Twelve and
Six-Tenths Cents ($0.126) and Nineteen and Six-Tenths Cents ($0.196),
respectively, per share (as adjusted for any stock dividends, combinations or
splits with respect to such shares) per annum. Such dividends shall be
payable only when, as and if declared by the Board of Directors and shall be
non-cumulative.

2.
<PAGE>

2. So long as any shares of the Preferred shall be outstanding, no
dividend, whether in cash or property, shall be paid or declared, nor shall any
other distribution be made, on any Junior Stock, nor shall any shares of any
Junior Stock of the Company be purchased, redeemed, or otherwise acquired for
value by the Company (except for acquisitions of Common Stock by the Company
pursuant to agreements which permit the Company to repurchase such shares upon
termination of services to the Company or in exercise of the Company's right of
first refusal upon a proposed transfer) until all dividends (set forth in
Section B(1) above) on the Preferred shall have been paid or declared and set
apart. In the event dividends are paid on any share of Common Stock, an
additional dividend shall be paid with respect to all outstanding shares of the
Preferred in an amount equal per share (on an as-if-converted to Common Stock
basis) to the amount paid or set aside for each share of Common Stock. The
provisions of this Section B(2) shall not, however, apply to (a) a dividend
payable in Common Stock, (b) the acquisition of shares of any Junior Stock in
exchange for shares of any other Junior Stock, or (c) any repurchase of any
outstanding securities of the Company that is unanimously approved by the
Company's Board of Directors. To the extent the Company is subject to Section
2115 of the California Corporations Code, the holders of the Preferred expressly
waive their rights, if any, as described in California Corporations Code
Sections 502, 503 and 506 as they relate to repurchase of shares upon
termination of employment.

C. VOTING RIGHTS.

1. GENERAL RIGHTS. Except as otherwise provided herein or as
required by law, the Preferred shall be voted equally with the shares of the
Common Stock of the Company and not as a separate class, at any annual or
special meeting of stockholders of the Company, and may act by written consent
in the same manner as the Common Stock, in either case upon the following basis:
each holder of shares of Preferred shall be entitled to such number of votes as
shall be equal to the whole number of shares of Common Stock into which such
holder's aggregate number of shares of the Preferred are convertible (pursuant
to Section E hereof) immediately after the close of business on the record date
fixed for such meeting or the effective date of such written consent.

2. SEPARATE VOTES BY SERIES OF THE PREFERRED. For so long as at
least One Million (1,000,000) shares of any series of Preferred remain
outstanding, in addition to any other vote or consent required herein or by law,
the vote or written consent of the holders of at least a majority of the
outstanding shares of such series of Preferred shall be necessary for effecting
or validating the following actions:

(a) Any increase or decrease (other than by redemption or
conversion) in the authorized number of shares of Common Stock or Preferred
Stock;

(b) Any authorization or any increase, whether by
reclassification or otherwise, in the authorized amount of any class of shares
or series of equity securities of the Company ranking senior to such series of
the Preferred in right of redemption, liquidation preference, voting or
dividends;

3.
<PAGE>

(c) Any redemption, repurchase, payment of dividends or other
distributions with respect to Junior Stock (except for acquisitions of Common
Stock by the Company pursuant to agreements that permit the Company to
repurchase such shares upon termination of services to the Company or in
exercise of the Company's right of first refusal upon a proposed transfer);

(d) Any agreement by the Company or its stockholders regarding
an Asset Transfer or Acquisition (each as defined in Section D.3.);

(e) Any action that results in the payment or declaration of any
dividend on any shares of Common Stock or Preferred Stock; or

(f) Any voluntary dissolution or liquidation of the Company.

3. ELECTION OF BOARD OF DIRECTORS. For so long as at least One
Million Two Hundred Thousand (1,200,000) shares of Series A Preferred remain
outstanding, the holders of Series A Preferred, voting as a separate class,
shall be entitled to One (1) Board Seat (as hereinafter defined). For so
long as the sum of the number of shares of Series B Preferred outstanding and
the number of shares of Series C Preferred outstanding exceeds Two Million
Two Hundred Thousand (2,200,000), the holders of Series B Preferred and
Series C Preferred, voting together as a single class, shall be entitled to
Two (2) Board Seats. The holders of the Common Stock, voting as a class,
shall be entitled to all remaining Board Seats. As used herein, a "Board
Seat" shall mean the right to elect a member of the Company's Board of
Directors at each meeting or pursuant to each consent of the Company's
stockholders for the election of directors, and to remove from office such
director and to fill any vacancy caused by the resignation, death or removal
of such director. In the event that the Company is subject to Section 2115
of the California Corporations Code, directors will be elected in accordance
with the foregoing provisions and Sections 301, 301.5 and 708 of the
California Corporations Code or any successor provisions thereto.

D. LIQUIDATION RIGHTS.

1. Upon any liquidation, dissolution, or winding up of the Company,
whether voluntary or involuntary, before any distribution or payment shall be
made to the holders of any Junior Stock, the holders of Preferred shall be
entitled to be paid in cash out of the assets of the Company an amount per share
of Preferred equal to the "Original Issue Price" (hereinafter defined)

4.
<PAGE>

(as adjusted for any stock dividends, combinations, splits, recapitalizations
and the like with respect to such shares) for each share of Preferred held by
them. The Original Issue Price of the Series A Preferred, Series B Preferred
and Series C Preferred is One Dollar and Seventy Cents ($1.70), One Dollar
and Eighty Cents ($1.80) and Two Dollars and Eighty Cents ($2.80),
respectively.

2. After the payment of the full liquidation preference of the
Preferred as set forth in Section D.1. above, the remaining assets of the
Company legally available for distribution, if any, shall be distributed ratably
to the holders of the Common Stock.

3. The following events shall be considered a liquidation under
Section D.1.:

(a) any consolidation or merger of the Company with or into any
other corporation or other entity or person, or any other corporate
reorganization, in which the stockholders of the Company immediately prior to
such consolidation, merger or reorganization, own less than 50% of the Company's
voting power immediately after such consolidation, merger or reorganization, or
any transaction or series of related transactions in which in excess of fifty
percent (50%) of the Company's voting power is transferred (an "Acquisition");
or

(b) a sale, lease or other disposition of all or substantially
all of the assets of the Company (an "Asset Transfer").

4. If, upon any liquidation, distribution or winding up, the assets
of the Company shall be insufficient to make payment in full to all holders of
Preferred of the liquidation preference set forth in Section D.1., then such
assets shall be distributed among the holders of the Preferred at the time
outstanding, ratably in proportion to the full amounts to which they would
otherwise be respectively entitled.

E. CONVERSION RIGHTS.

The holders of the Preferred shall have the following rights with
respect to the conversion of the Preferred into shares of Common Stock (the
"Conversion Rights"):

1. OPTIONAL CONVERSION. Subject to and in compliance with the
provisions of this Section E any shares of a series of the Preferred may, at the
option of the holder, be converted at any time into fully-paid and nonassessable
shares of Common Stock. The number of shares of Common Stock to which a holder
of shares of a series of the Preferred shall be entitled upon conversion shall
be the product obtained by multiplying the "Conversion Rate" then in effect for
such series (determined as provided in Section E.2. by the number of shares of
such series of Preferred being converted.

2. CONVERSION RATE. The conversion rate in effect at any time for
conversion of shares of a series of the Preferred (the "Conversion Rate") shall
be the quotient obtained by dividing the Original Issue Price of such series of
the Preferred by the "Conversion Price" for such series of the Preferred,
calculated as provided in Section E.3.

5.
<PAGE>

3. CONVERSION PRICE. The conversion price for each series of the
Preferred shall initially be the Original Issue Price of that series of
Preferred (the "Conversion Price"). Such initial Conversion Price shall be
adjusted from time to time in accordance with this Section E. All references to
the Conversion Price herein shall mean the Conversion Price as so adjusted.

4. MECHANICS OF CONVERSION. Each holder of the Preferred who
desires to convert the same into shares of Common Stock pursuant to this
Section E shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Company or any transfer agent for the Preferred,
and shall give written notice to the Company at such office that such holder
elects to convert the same. Such notice shall state the number of shares of the
Preferred being converted. Thereupon, the Company shall promptly issue and
deliver at such office to such holder a certificate or certificates for the
number of shares of Common Stock to which such holder is entitled and shall
promptly pay in cash or, to the extent sufficient funds are not then legally
available therefor, in Common Stock (at the Common Stock's fair market value
determined by the Board of Directors as of the date of such conversion), any
declared and unpaid dividends on the shares of the Preferred being converted.
Such conversion shall be deemed to have been made at the close of business on
the date of such surrender of the certificates representing the shares of the
Preferred to be converted, and the person entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder of such shares of Common Stock on such date.

5. ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the Company
shall at any time or from time to time after the first day the Company issues
any shares of Preferred (the "Original Issue Date") effect a subdivision of the
outstanding Common Stock, the Conversion Price for each series of the Preferred
in effect immediately before that subdivision shall be proportionately
decreased. Conversely, if the Company shall at any time or from time to time
after the Original Issue Date combine the outstanding shares of Common Stock
into a smaller number of shares, the Conversion Price for each series of the
Preferred in effect immediately before the combination shall be proportionately
increased. Any adjustment under this Section E.5. shall become effective at the
close of business on the date the subdivision or combination becomes effective.

6. ADJUSTMENT FOR COMMON STOCK DIVIDENDS AND DISTRIBUTIONS. If the
Company at any time or from time to time after the Original Issue Date makes, or
fixes a record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in additional shares of Common
Stock, in each such event the Conversion Price that is then in effect for each
series of the Preferred shall be decreased as of the time of such issuance or,
in the event such record date is fixed, as of the close of business on such
record date, by multiplying the Conversion Price then in effect for each series
of the Preferred by a fraction (a) the numerator of which is the total number of
shares of Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date, and (b) the
denominator of which is the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance or the close of
business on such record date plus the number of shares of Common Stock issuable
in payment of such dividend or distribution; PROVIDED, HOWEVER, that if such
record date is fixed and such dividend is not fully paid or if such distribution
is not fully made on the date fixed therefor, the Conversion Price for each

6.
<PAGE>

series of the Preferred shall be recomputed accordingly as of the close of
business on such record date and thereafter the Conversion Price shall be
adjusted pursuant to this Section E.6. to reflect the actual payment of such
dividend or distribution.

7. ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. If the
Company at any time or from time to time after the Original Issue Date makes, or
fixes a record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in securities of the Company
other than shares of Common Stock, in each such event provision shall be made so
that the holders of the Preferred shall receive upon conversion thereof, in
addition to the number of shares of Common Stock receivable thereupon, the
amount of other securities of the Company that they would have received had
their Preferred been converted into Common Stock on the date of such event and
had they thereafter, during the period from the date of such event to and
including the conversion date, retained such securities receivable by them as
aforesaid during such period, subject to all other adjustments called for during
such period under this Section E with respect to the rights of the holders of
the Preferred or with respect to such other securities by their terms.

8. ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND SUBSTITUTION. If
at any time or from time to time after the Original Issue Date, the Common Stock
issuable upon the conversion of the Preferred is changed into the same or a
different number of shares of any class or classes of stock, whether by
recapitalization, reclassification or otherwise (other than an Acquisition or
Asset Transfer as defined in Section D.3. or a subdivision or combination of
shares or stock dividend or a reorganization, merger, consolidation or sale of
assets provided for elsewhere in this Section E), in any such event each holder
of the Preferred shall have the right thereafter to convert such stock into the
kind and amount of stock and other securities and property receivable upon such
recapitalization, reclassification or other change by holders of the maximum
number of shares of Common Stock into which such shares of the Preferred could
have been converted immediately prior to such recapitalization, reclassification
or change, all subject to further adjustment as provided herein or with respect
to such other securities or property by the terms thereof.

9. REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR SALES OF ASSETS. If
at any time or from time to time after the Original Issue Date, there is a
capital reorganization of the Common Stock (other than an Acquisition or Asset
Transfer as defined in Section D.3. or as recapitalization, subdivision,
combination, reclassification, exchange or substitution of shares provided for
elsewhere in this Section E), as a part of such capital reorganization,
provision shall be made so that the holders of the Preferred shall thereafter be
entitled to receive upon conversion of the Preferred the number of shares of
stock or other securities or property of the Company to which a holder of the
number of shares of Common Stock deliverable upon conversion would have been
entitled on such capital reorganization, subject to adjustment in respect of
such stock or securities by the terms thereof. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section E
with respect to the rights of the holders of the Preferred after the capital
reorganization to the end that the provisions of this Section E (including
adjustment of the Conversion Price then in effect for each series of the
Preferred and the number of shares issuable

7.
<PAGE>

upon conversion of the Preferred) shall be applicable after that event and be as
nearly equivalent as practicable.

10. SALE OF SHARES BELOW CONVERSION PRICE.

(a) If at any time or from time to time after the Original Issue
Date, the Company issues or sells, or is deemed by the express provisions of
this Subsection 10 to have issued or sold, Additional Shares of Common Stock (as
hereinafter defined), other than as a dividend or other distribution on any
class of stock as provided in Section E.6. above, and other than a subdivision
or combination of shares of Common Stock as provided in Section E.5. above, for
an Effective Price (as hereinafter defined) less than the then effective
Conversion Price with respect to any series of the Preferred, then and in each
such case the then existing Conversion Price for such series of the Preferred
shall be reduced, as of the opening of business on the date of such issue or
sale, to a price determined by multiplying such Conversion Price by a fraction
(1) the numerator of which shall be (A) the number of shares of Common Stock
deemed outstanding (as defined below) immediately prior to such issue or sale,
plus (B) the number of shares of Common Stock which the aggregate consideration
received (as defined in Subsection 10(b)) by the Company for the total number of
Additional Shares of Common Stock so issued would purchase at such Conversion
Price, and (2) the denominator of which shall be the number of shares of Common
Stock deemed outstanding (as defined below) immediately prior to such issue or
sale plus the total number of Additional Shares of Common Stock so issued. For
the purposes of the preceding sentence, the number of shares of Common Stock
deemed to be outstanding as of a given date shall be the sum of (A) the number
of shares of Common Stock actually outstanding, (B) the number of shares of
Common Stock into which the then outstanding shares of the Preferred could be
converted if fully converted on the day immediately preceding the given date,
and (C) the number of shares of Common Stock which could be obtained through the
exercise or conversion of all other rights, options and Convertible Securities
(as hereinafter defined) on the day immediately preceding the given date.

(b) For the purpose of making any adjustment required under this
Section E.10., the consideration received by the Company for any issue or sale
of securities shall (1) to the extent it consists of cash, be computed at the
net amount of cash received by the Company after deduction of any underwriting
or similar commissions, compensation or concessions paid or allowed by the
Company in connection with such issue or sale but without deduction of any
expenses payable by the Company, (2) to the extent it consists of property other
than cash, be computed at the fair market value of that property as determined
in good faith by the Board of Directors, and (3) if Additional Shares of Common
Stock, Convertible Securities (as hereinafter defined) or rights or options to
purchase either Additional Shares of Common Stock or Convertible Securities are
issued or sold together with other stock or securities or other assets of the
Company for a consideration which covers both, be computed as the portion of the
consideration so received that may be reasonably determined in good faith by the
Board of Directors to be allocable to such Additional Shares of Common Stock,
Convertible Securities or rights or options.

8.
<PAGE>

(c) For the purpose of the adjustment required under this
Section E.10., if the Company issues or sells any rights or options for the
purchase of, or stock or other securities convertible into, Additional Shares of
Common Stock (such convertible stock or securities being herein referred to as
"Convertible Securities") and if the Effective Price of such Additional Shares
of Common Stock is less than the Conversion Price with respect to a series of
the Preferred, in each case the Company shall be deemed to have issued at the
time of the issuance of such rights or options or Convertible Securities the
maximum number of Additional Shares of Common Stock issuable upon exercise or
conversion thereof and to have received as consideration for the issuance of
such shares an amount equal to the total amount of the consideration, if any,
received by the Company for the issuance of such rights or options or
Convertible Securities, plus, in the case of such rights or options, the minimum
amounts of consideration, if any, payable to the Company upon the exercise of
such rights or options, plus, in the case of Convertible Securities, the minimum
amounts of consideration, if any, payable to the Company (other than by
cancellation of liabilities or obligations evidenced by such Convertible
Securities) upon the conversion thereof; PROVIDED that if in the case of
Convertible Securities the minimum amounts of such consideration cannot be
ascertained, but are a function of antidilution or similar protective clauses,
the Company shall be deemed to have received the minimum amounts of
consideration without reference to such clauses; PROVIDED FURTHER that if the
minimum amount of consideration payable to the Company upon the exercise or
conversion of rights, options or Convertible Securities is reduced over time or
on the occurrence or non-occurrence of specified events other than by reason of
antidilution adjustments, the Effective Price shall be recalculated using the
figure to which such minimum amount of consideration is reduced; PROVIDED
FURTHER that if the minimum amount of consideration payable to the Company upon
the exercise or conversion of such rights, options or Convertible Securities is
subsequently increased, the Effective Price shall be again recalculated using
the increased minimum amount of consideration payable to the Company upon the
exercise or conversion of such rights, options or Convertible Securities. No
further adjustment of the Conversion Price with respect to a series of the
Preferred, as adjusted upon the issuance of such rights, options or Convertible
Securities, shall be made as a result of the actual issuance of Additional
Shares of Common Stock on the exercise of any such rights or options or the
conversion of any such Convertible Securities. If any such rights or options or
the conversion privilege represented by any such Convertible Securities shall
expire without having been exercised, such Conversion Price as adjusted upon the
issuance of such rights, options or Convertible Securities shall be readjusted
to the Conversion Price which would have been in effect had an adjustment been
made on the basis that the only Additional Shares of Common Stock so issued were
the Additional Shares of Common Stock, if any, actually issued or sold on the
exercise of such rights or options or rights of conversion of such Convertible
Securities, and such Additional Shares of Common Stock, if any, were issued or
sold for the consideration actually received by the Company upon such exercise,
plus the consideration, if any, actually received by the Company for the
granting of all such rights or options, whether or not exercised, plus the
consideration received for issuing or selling the Convertible Securities
actually converted, plus the consideration, if any, actually received by the
Company (other than by cancellation of liabilities or obligations evidenced by
such Convertible Securities) on the conversion of such Convertible Securities,
PROVIDED that such readjustment shall not apply to prior conversions of the
Preferred.

9.
<PAGE>

(d) "Additional Shares of Common Stock" shall mean all shares of
Common Stock issued by the Company or deemed to be issued pursuant to this
Section E.10., whether or not subsequently reacquired or retired by the Company
other than (1) shares of Common Stock issued upon conversion of the Preferred;
(2) shares of Common Stock and/or options, warrants or other Common Stock
purchase rights and the Common Stock issued pursuant to such options, warrants
or other rights (as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like) issued or to be issued to employees, officers or
directors of, or consultants or advisors to the Company or any subsidiary
pursuant to stock purchase or stock option plans or other arrangements that are
approved by the Board; (3) shares of Common Stock issued pursuant to the
exercise of options, warrants or convertible securities outstanding as of the
Original Issue Date; (4) shares of Common Stock issuable in connection with a
loan or leasing transaction approved by the Board of Directors, (5) shares of
Series B Preferred, shares of Series C Preferred or the Series C Warrant issued
to Warburg, Pincus Ventures, L.P., (6) strategic transactions approved by a
majority of the members of the Board of Directors including at least one of the
directors elected by the holders of the Series B Preferred and the Series C
Preferred and (7) shares of Common Stock issuable under options, warrants or
rights granted in connection with any of the foregoing transactions. The
"Effective Price" of Additional Shares of Common Stock shall mean the quotient
determined by dividing the total number of Additional Shares of Common Stock
issued or sold, or deemed to have been issued or sold by the Company under this
Section E.10., into the aggregate consideration received, or deemed to have been
received by the Company for such issue under this Section E.10., for such
Additional Shares of Common Stock.

11. CERTIFICATE OF ADJUSTMENT. In each case of an adjustment or
readjustment of the Conversion Price of a series of the Preferred for the number
of shares of Common Stock or other securities issuable upon conversion of such
series of the Preferred, if such Preferred is then convertible pursuant to this
Section E, the Company, at its expense, shall compute such adjustment or
readjustment in accordance with the provisions hereof and prepare a certificate
showing such adjustment or readjustment, and shall mail such certificate, by
first class mail, postage prepaid, to each registered holder of shares of such
series of the Preferred at the holder's address as shown in the Company's books.
The certificate shall set forth such adjustment or readjustment, showing in
detail the facts upon which such adjustment or readjustment is based, including
a statement of (a) the consideration received or deemed to be received by the
Company for any Additional Shares of Common Stock issued or sold or deemed to
have been issued or sold, (b) the Conversion Price at the time in effect,
(c) the number of Additional Shares of Common Stock and (d) the type and amount,
if any, of other property which at the time would be received upon conversion of
that series of the Preferred.

12. NOTICES OF RECORD DATE. Upon (a) any taking by the Company of
a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution, or (b) any Acquisition (as defined in Section D.3.) or other
capital reorganization of the Company, any reclassification or recapitalization
of the capital stock of the Company, any merger or consolidation of the Company
with or into any other corporation, or any Asset Transfer (as defined in
Section D.3.), or any voluntary or involuntary dissolution, liquidation or
winding up of the Company, the Company shall mail to each

10.
<PAGE>

holder of the Preferred at least twenty (20) days prior to the record date
specified therein a notice specifying (x) the date on which any such record is
to be taken for the purpose of such dividend or distribution and a description
of such dividend or distribution, (y) the date on which any such Acquisition,
reorganization, reclassification, transfer, consolidation, merger, Asset
Transfer, dissolution, liquidation or winding up is expected to become
effective, and (z) the date, if any, that is to be fixed as to when the holders
of record of Common Stock (or other securities) shall be entitled to exchange
their shares of Common Stock (or other securities) for securities or other
property deliverable upon such Acquisition, reorganization, reclassification,
transfer, consolidation, merger, Asset Transfer, dissolution, liquidation or
winding up; PROVIDED, HOWEVER, that any notice required by this Section E.12.
may be waived by holders of a majority of the Preferred.

13. AUTOMATIC CONVERSION.

(a) Each share of the Preferred shall automatically be
converted into shares of Common Stock, based on the then-effective Conversion
Price for the applicable series of the Preferred, (1) at any time upon the
affirmative vote of the holders of at least a majority of the outstanding
shares of the Preferred, or (2) immediately upon the closing of a firmly
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, covering the offer and sale of
Common Stock for the account of the Company in which the per share price is
at least Eight Dollars and Eighty Cents ($8.80) (as adjusted for any stock
dividends, combinations, splits, recapitalizations and the like) and the
gross cash proceeds to the Company (before underwriting discounts,
commissions and fees) are at least Seven Million Five Hundred Thousand
Dollars ($7,500,000). Upon such automatic conversion, any declared but
unpaid dividends shall be paid in accordance with the provisions of Section
E.4.

(b) Upon the occurrence of the event specified in paragraph (a)
above, the outstanding shares of the Preferred shall be converted automatically
without any further action by the holders of such shares and whether or not the
certificates representing such shares are surrendered to the Company or its
transfer agent; PROVIDED, HOWEVER, that the Company shall not be obligated to
issue certificates evidencing the shares of Common Stock issuable upon such
conversion unless the certificates evidencing such shares of Preferred are
either delivered to the Company or its transfer agent as provided below, or the
holder notifies the Company or its transfer agent that such certificates have
been lost, stolen or destroyed and executes an agreement satisfactory to the
Company to indemnify the Company from any loss incurred by it in connection with
such certificates. Upon the occurrence of such automatic conversion of the
Preferred, the holders of the Preferred shall surrender the certificates
representing such shares at the office of the Company or any transfer agent for
the Preferred. Thereupon, there shall be issued and delivered to such holder
promptly at such office and in its name as shown on such surrendered certificate
or certificates, a certificate or certificates for the number of shares of
Common Stock into which the shares of the Preferred surrendered were convertible
on the date on which such automatic conversion occurred, and any declared and
unpaid dividends shall be paid in accordance with the provisions of Section E.4.

11.
<PAGE>

14. FRACTIONAL SHARES. No fractional shares of Common Stock shall be
issued upon conversion of the Preferred. All shares of Common Stock (including
fractions thereof) issuable upon conversion of more than one share of the
Preferred by a holder thereof shall be aggregated for purposes of determining
whether the conversion would result in the issuance of any fractional share.
If, after the aforementioned aggregation, the conversion would result in the
issuance of any fractional share, the Company shall, in lieu of issuing any
fractional share, pay cash equal to the product of such fraction multiplied by
the Common Stock's fair market value (as determined by the Board) on the date of
conversion.

15. RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Company shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Preferred, such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all outstanding
shares of the Preferred. If at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to effect the conversion of all
then outstanding shares of the Preferred, the Company will take such corporate
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose.

16. NOTICES. Any notice required by the provisions of this Section E
shall be in writing and shall be deemed effectively given: (a) upon personal
delivery to the party to be notified, (b) when sent by confirmed telex or
facsimile if sent during normal business hours of the recipient; if not, then on
the next business day, (c) five (5) days after having been sent by registered or
certified mail, return receipt requested, postage prepaid, or (d) one (1) day
after deposit with a nationally recognized overnight courier, specifying next
day delivery, with written verification of receipt. All notices shall be
addressed to each holder of record at the address of such holder appearing on
the books of the Company.

17. PAYMENT OF TAXES. The Company will pay all taxes (other than
taxes based upon income) and other governmental charges that may be imposed with
respect to the issue or delivery of shares of Common Stock upon conversion of
shares of the Preferred, excluding any tax or other charge imposed in connection
with any transfer involved in the issue and delivery of shares of Common Stock
in a name other than that in which the shares of the Preferred so converted were
registered.

18. NO DILUTION OR IMPAIRMENT. The Company shall not amend its
Certificate of Incorporation or participate in any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, for the purpose of avoiding or seeking to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but shall at all times in good faith assist in
carrying out all such action as may be reasonably necessary or appropriate in
order to protect the conversion rights of the holders of the Preferred.

12.
<PAGE>

F. NO REISSUANCE OF THE PREFERRED. No share or shares of the Preferred
acquired by the Company by reason of redemption, purchase, conversion or
otherwise shall be reissued.

G. NO PREEMPTIVE RIGHTS. Stockholders shall have no preemptive rights
except as granted by the Company pursuant to written agreements.

H. REDEMPTION.

1. The holders of a majority of the then outstanding shares of
Series B Preferred may require the Company to redeem, from any source of
funds legally available therefor, the Series B Preferred on September 10,
2006 (the "Series B Redemption Date") by delivering the Series B Redemption
Notice (as hereinafter defined) to the Company. The "Series B Redemption
Notice" means a notice that shall (a) be executed by holders of at least a
majority of the then outstanding shares of Series B Preferred; (b) request
redemption of all Series B Preferred on the Series B Redemption Date and (c)
be delivered to the Company no more than ninety (90) nor less than sixty (60)
days prior to the Series B Redemption Date. The Company shall effect such
redemption by paying in cash in exchange for the shares of Series B to be
redeemed a sum equal to One Dollar and Eighty Cents ($1.80) per share of
Series B Preferred (as adjusted for any stock dividends, combinations or
splits with respect to those shares) plus any declared but unpaid dividends
on such shares against delivery of such shares.

2. The holders of a majority of the then outstanding shares of
Series C Preferred may require the Company to redeem, from any source of
funds legally available therefor, the Series C Preferred on the Series C
Redemption Date (as hereinafter defined) by delivering the Series C
Redemption Notice (as hereinafter defined) to the Company. The "Series C
Redemption Date" means the tenth anniversary of the first issuance by the
Company of the Series C Preferred. The "Series C Redemption Notice" means a
notice that shall (a) be executed by holders of at least a majority of the
then outstanding shares of Series C Preferred; (b) request redemption of all
Series C Preferred on the Series C Redemption Date; and (c) be delivered to
the Company no more than ninety (90) nor less than sixty (60) days prior to
the Series C Redemption Date. The Company shall effect such redemption by
paying in cash in exchange for the Series C Preferred to be redeemed a sum
equal to Two Dollars and Eighty Cents ($2.80) per share of Series C Preferred
(as adjusted for any stock dividends, combinations or splits with respect to
those shares) plus any declared but unpaid dividends on such shares against
delivery of such shares.

3. If the Company is unable to redeem any shares of any series of
Preferred Stock on its redemption date because such redemption would violate
applicable laws, then the Company shall redeem such shares as soon thereafter as
redemption would not violate such laws. In the event of any redemption of only
part of a series of Preferred Stock, the Company shall effect such redemption
pro rata among the holders thereof (based on the number of shares of such series
held on the date of notice of redemption).

VI.

13.
<PAGE>

The management of the business and the conduct of the affairs of the
Company shall be vested in its Board of Directors. The number of directors
which shall constitute the whole Board of Directors shall be fixed by the Board
of Directors in the manner provided in the Bylaws. Subject to paragraph (h) of
Section 43 of the Bylaws, the Bylaws may be altered or amended or new Bylaws
adopted by the stockholders entitled to vote. The Board of Directors shall also
have the power to adopt, amend or repeal Bylaws; provided, however, that any
amendment of the Bylaws reducing the number of directors to less than six
requires the approval of the holders of a majority of the outstanding Common
Stock.

VII.

A. A director of the Company shall not be personally liable to the
Company or its stockholders for monetary damages for any breach of fiduciary
duty as a director, except for liability (1) for any breach of the director's
duty of loyalty to the Company or its stockholders, (2) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law (3) under Section 174 of the Delaware General Corporation Law, or (4) for
any transaction from which the director derived an improper personal benefit.
If the Delaware General Corporation Law is amended after approval by the
stockholders of this Article VII to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director shall be eliminated or limited to the fullest extent permitted by
the Delaware General Corporation Law, as so amended.

B. Any repeal or modification of this Article VII shall be prospective
and shall not affect the rights under this Article VII in effect at the time of
the alleged occurrence of any act or omission to act giving rise to liability or
indemnification.

VIII.

Following the closing of the initial public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
covering the offer and sale of Common Stock of the Company, any action permitted
to be taken at any annual or special meeting of the stockholders may only be
taken with such a meeting and may not be consented to in writing.

IX.

The Company reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon the stockholders
herein are granted subject to this reservation."

14.
<PAGE>

4. This Amended and Restated Certificate of Incorporation has been duly
approved by the Board of Directors of this corporation.

5. This Amended and Restated Certificate of Incorporation has been duly
adopted in accordance with the provisions of Sections 228 and 245 of the General
Corporation Law of the State of Delaware by the stockholders of this
corporation.

IN WITNESS WHEREOF, Scientific Learning Corporation has caused this Amended
and Restated Certificate of Incorporation to be signed by its President and
Secretary in Berkeley, California this __ day of ________, 1998.

SCIENTIFIC LEARNING CORPORATION

By:
------------------------------------------
SHERYLE J. BOLTON
President and Chief Executive Officer

15.

<PAGE>

BYLAWS

SCIENTIFIC LEARNING CORPORATION

(A DELAWARE CORPORATION)

<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1. Registered Office. . . . . . . . . . . . . . . . . . . . 1
Section 2. Other Offices. . . . . . . . . . . . . . . . . . . . . . 1

ARTICLE II CORPORATE SEAL. . . . . . . . . . . . . . . . . . . . . . . 1
Section 3. Corporate Seal . . . . . . . . . . . . . . . . . . . . . 1

ARTICLE III STOCKHOLDERS' MEETINGS. . . . . . . . . . . . . . . . . . . 1
Section 4. Place of Meetings. . . . . . . . . . . . . . . . . . . . 1
Section 5. Annual Meeting . . . . . . . . . . . . . . . . . . . . . 1
Section 6. Special Meetings . . . . . . . . . . . . . . . . . . . . 2
Section 7. Notice of Meetings . . . . . . . . . . . . . . . . . . . 3
Section 8. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 9. Adjournment and Notice of Adjourned Meetings . . . . . . 4
Section 10. Voting Rights. . . . . . . . . . . . . . . . . . . . . . 4
Section 11. Joint Owners of Stock. . . . . . . . . . . . . . . . . . 4
Section 12. List of Stockholders . . . . . . . . . . . . . . . . . . 4
Section 13. Action Without Meeting . . . . . . . . . . . . . . . . . 5
Section 14. Organization . . . . . . . . . . . . . . . . . . . . . . 5

ARTICLE IV DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 15. Number and Term of Office. . . . . . . . . . . . . . . . 6
Section 16. Powers . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 17. Term of Directors. . . . . . . . . . . . . . . . . . . . 6
Section 18. Vacancies. . . . . . . . . . . . . . . . . . . . . . . . 6
Section 19. Resignation. . . . . . . . . . . . . . . . . . . . . . . 7
Section 20. Removal. . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 21. Meetings . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 22. Quorum and Voting. . . . . . . . . . . . . . . . . . . . 8
Section 23. Action Without Meeting . . . . . . . . . . . . . . . . . 8
Section 24. Fees and Compensation. . . . . . . . . . . . . . . . . . 8
Section 25. Committees . . . . . . . . . . . . . . . . . . . . . . . 9
Section 26. Organization . . . . . . . . . . . . . . . . . . . . . .10
</TABLE>

i
<PAGE>

TABLE OF CONTENTS
(CONTINUED)

PAGE
<TABLE>
<CAPTION>

<S> <C> <C>
ARTICLE V OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . .10
Section 27. Officers Designated. . . . . . . . . . . . . . . . . . .10
Section 28. Tenure and Duties of Officers. . . . . . . . . . . . . .10
Section 29. Delegation of Authority. . . . . . . . . . . . . . . . .12
Section 30. Resignations . . . . . . . . . . . . . . . . . . . . . .12
Section 31. Removal. . . . . . . . . . . . . . . . . . . . . . . . .12

ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS AND VOTING
OF SECURITIES OWNED BY THE CORPORATION. . . . . . . . . . .12
Section 32. Execution of Corporate Instruments . . . . . . . . . . .12
Section 33. Voting of Securities Owned by the Corporation. . . . . .13

ARTICLE VII SHARES OF STOCK . . . . . . . . . . . . . . . . . . . . . .13
Section 34. Form and Execution of Certificates . . . . . . . . . . .13
Section 35. Lost Certificates. . . . . . . . . . . . . . . . . . . .14
Section 36. Transfers. . . . . . . . . . . . . . . . . . . . . . . .14
Section 37. Fixing Record Dates. . . . . . . . . . . . . . . . . . .14
Section 38. Registered Stockholders. . . . . . . . . . . . . . . . .15

ARTICLE VIII OTHER SECURITIES OF THE CORPORATION . . . . . . . . . . . .15
Section 39. Execution of Other Securities. . . . . . . . . . . . . .15

ARTICLE IX DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . .16
Section 40. Declaration of Dividends . . . . . . . . . . . . . . . .16
Section 41. Dividend Reserve . . . . . . . . . . . . . . . . . . . .16

ARTICLE X FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . . . .16
Section 42. Fiscal Year. . . . . . . . . . . . . . . . . . . . . . .16

ARTICLE XI INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . .16
Section 43. Indemnification of Directors, Executive Officers,
Other Officers, Employees and Other Agents . . . . . . .16

ARTICLE XII NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . .19
Section 44. Notices. . . . . . . . . . . . . . . . . . . . . . . . .19

ARTICLE XIII AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . .21
Section 45. Amendments . . . . . . . . . . . . . . . . . . . . . . .21
</TABLE>

ii.
<PAGE>

TABLE OF CONTENTS
(CONTINUED)

<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE XIV RIGHT OF FIRST REFUSAL. . . . . . . . . . . . . . . . . . .21
Section 46. Right of First Refusal . . . . . . . . . . . . . . . . .21

ARTICLE XV LOANS TO OFFICERS . . . . . . . . . . . . . . . . . . . . .24
Section 47. Loans to Officers. . . . . . . . . . . . . . . . . . . .24

ARTICLE XVI MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . .24
Section 48. Annual Report. . . . . . . . . . . . . . . . . . . . . .24
</TABLE>

iii.
<PAGE>

BYLAWS

SCIENTIFIC LEARNING CORPORATION

(A DELAWARE CORPORATION)

ARTICLE I

OFFICES

SECTION 1. REGISTERED OFFICE. The registered office of the corporation
in the State of Delaware shall be in the City of Dover, County of Kent.

SECTION 2. OTHER OFFICES. The corporation shall also have and maintain
an office or principal place of business at such place as may be fixed by the
Board of Directors, and may also have offices at such other places, both within
and without the State of Delaware as the Board of Directors may from time to
time determine or the business of the corporation may require.

ARTICLE II

CORPORATE SEAL

SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to
be impressed or affixed or reproduced or otherwise.

ARTICLE III

STOCKHOLDERS' MEETINGS

SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the principal office of the corporation required
to be maintained pursuant to Section 2 hereof.

SECTION 5. ANNUAL MEETING.

(a) The annual meeting of the stockholders of the corporation,
for the purpose of election of directors and for such other business as may
lawfully come before it, shall be held on such date and at such time as may be
designated from time to time by the Board of Directors.

1
<PAGE>

supplement thereto) given by or at the direction of the Board of Directors, (B)
otherwise properly brought before the meeting by or at the direction of the
Board of Directors, or (C) otherwise properly brought before the meeting by a
stockholder. For business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the Secretary of the corporation. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
corporation not later than the close of business on the sixtieth (60th) day nor
earlier than the close of business on the ninetieth (90th) day prior to the
first anniversary of the preceding year's annual meeting; provided, however,
that in the event that no annual meeting was held in the previous year or the
date of the annual meeting has been changed by more than thirty (30) days from
the date contemplated at the time of the previous year's proxy statement, notice
by the stockholder to be timely must be so received not earlier than the close
of business on the ninetieth (90th) day prior to such annual meeting and not
later than the close of business on the later of the sixtieth (60th) day prior
to such annual meeting or, in the event public announcement of the date of such
annual meeting is first made by the corporation fewer than seventy (70) days
prior to the date of such annual meeting, the close of business on the tenth
(10th) day following the day on which public announcement of the date of such
meeting is first made by the corporation. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder proposes to bring
before the annual meeting: (i) a brief description of the business desired to
be brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (ii) the name and address, as they appear on the
corporation's books, of the stockholder proposing such business, (iii) the class
and number of shares of the corporation which are beneficially owned by the
stockholder, (iv) any material interest of the stockholder in such business and
(v) any other information that is required to be provided by the stockholder
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "1934 Act"), in his capacity as a proponent to a stockholder proposal.
Notwithstanding the foregoing, in order to include information with respect to a
stockholder proposal in the proxy statement and form of proxy for a
stockholders' meeting, stockholders must provide notice as required by the
regulations promulgated under the 1934 Act. Notwithstanding anything in these
Bylaws to the contrary, no business shall be conducted at any annual meeting
except in accordance with the procedures set forth in this paragraph (b). The
chairman of the annual meeting shall, if the facts warrant, determine and
declare at the meeting that business was not properly brought before the meeting
and in accordance with the provisions of this paragraph (b), and, if he should
so determine, he shall so declare at the meeting that any such business not
properly brought before the meeting shall not be transacted.

(c) For purposes of this Section 5, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.

SECTION 6. SPECIAL MEETINGS.

2.
<PAGE>

authorized directorships at the time any such resolution is presented to the
Board of Directors for adoption), or (iv) by the holders of shares entitled to
cast not less than ten percent (10%) of the votes at the meeting, and shall be
held at such place, on such date, and at such time as the Board of Directors,
shall fix.

(b) If a special meeting is called by any person or persons
other than the Board of Directors, the request shall be in writing, specifying
the general nature of the business proposed to be transacted, and shall be
delivered personally or sent by registered mail or by telegraphic or other
facsimile transmission to the Chairman of the Board of Directors, the Chief
Executive Officer, or the Secretary of the corporation. No business may be
transacted at such special meeting otherwise than specified in such notice. The
Board of Directors shall determine the time and place of such special meeting,
which shall be held not less than thirty-five (35) nor more than one hundred
twenty (120) days after the date of the receipt of the request. Upon
determination of the time and place of the meeting, the officer receiving the
request shall cause notice to be given to the stockholders entitled to vote, in
accordance with the provisions of Section 7 of these Bylaws. If the notice is
not given within sixty (60) days after the receipt of the request, the person or
persons requesting the meeting may set the time and place of the meeting and
give the notice. Nothing contained in this paragraph (b) shall be construed as
limiting, fixing, or affecting the time when a meeting of stockholders called by
action of the Board of Directors may be held.

SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or
the Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given.

3.
<PAGE>

or represented by proxy at the meeting and entitled to vote on the election of
directors. Where a separate vote by a class or classes or series is required,
except where otherwise provided by the statute or by the Certificate of
Incorporation or these Bylaws, a majority of the outstanding shares of such
class or classes or series, present in person or represented by proxy, shall
constitute a quorum entitled to take action with respect to that vote on that
matter and, except where otherwise provided by statute or by the Certificate of
Incorporation or these Bylaws, the affirmative vote of the majority (plurality,
in the case of the election of directors) of the votes cast, including
abstentions, by the holders of shares of such class or classes or series shall
be the act of such class or classes or series.

SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting
of stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
casting votes, excluding abstentions. When a meeting is adjourned to another
time or place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken.
At the adjourned meeting, the corporation may transact any business which might
have been transacted at the original meeting. If the adjournment is for more
than thirty (30) days or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.

SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote or execute consents shall have the right to do so either
in person or by an agent or agents authorized by a proxy granted in accordance
with Delaware law. An agent so appointed need not be a stockholder. No proxy
shall be voted after three (3) years from its date of creation unless the proxy
provides for a longer period.

SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the
majority so voting binds all; (c) if more than one (1) votes, but the vote is
evenly split on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of Chancery for
relief as provided in the General Corporation Law of Delaware, Section 217(b).
If the instrument filed with the Secretary shows that any such tenancy is held
in unequal interests, a majority or even-split for the purpose of subsection (c)
shall be a majority or even-split in interest.

4.
<PAGE>

the number of shares registered in the name of each stockholder. Such list
shall be open to the examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least ten (10)
days prior to the meeting, either at a place within the city where the meeting
is to be held, which place shall be specified in the notice of the meeting, or,
if not specified, at the place where the meeting is to be held. The list shall
be produced and kept at the time and place of meeting during the whole time
thereof and may be inspected by any stockholder who is present.

SECTION 13. ACTION WITHOUT MEETING.

(a) Unless otherwise provided in the Certificate of
Incorporation, any action required by statute to be taken at any annual or
special meeting of the stockholders, or any action which may be taken at any
annual or special meeting of the stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted.

(b) Every written consent shall bear the date of signature of
each stockholder who signs the consent, and no written consent shall be
effective to take the corporate action referred to therein unless, within sixty
(60) days of the earliest dated consent delivered to the corporation in the
manner herein required, written consents signed by a sufficient number of
stockholders to take action are delivered to the corporation by delivery to its
registered office in the State of Delaware, its principal place of business or
an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to a
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested.

(c) Prompt notice of the taking of the corporate action without
a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. If the action which is
consented to is such as would have required the filing of a certificate under
any section of the General Corporation Law of the State of Delaware if such
action had been voted on by stockholders at a meeting thereof, then the
certificate filed under such section shall state, in lieu of any statement
required by such section concerning any vote of stockholders, that written
notice and written consent have been given as provided in Section 228 of the
General Corporation Law of Delaware.

SECTION 14. ORGANIZATION.

(a) At every meeting of stockholders, the Chairman of the Board
of Directors, or, if a Chairman has not been appointed or is absent, the
President, or, if the President is absent, a chairman of the meeting chosen by a
majority in interest of the stockholders entitled to vote, present in person or
by proxy, shall act as chairman. The Secretary, or, in his absence, an
Assistant Secretary directed to do so by the President, shall act as secretary
of the meeting.

(b) The Board of Directors of the corporation shall be entitled
to make such rules or regulations for the conduct of meetings of stockholders as
it shall deem necessary,

5.
<PAGE>

appropriate or convenient. Subject to such rules and regulations of the Board
of Directors, if any, the chairman of the meeting shall have the right and
authority to prescribe such rules, regulations and procedures and to do all such
acts as, in the judgment of such chairman, are necessary, appropriate or
convenient for the proper conduct of the meeting, including, without limitation,
establishing an agenda or order of business for the meeting, rules and
procedures for maintaining order at the meeting and the safety of those present,
limitations on participation in such meeting to stockholders of record of the
corporation and their duly authorized and constituted proxies and such other
persons as the chairman shall permit, restrictions on entry to the meeting after
the time fixed for the commencement thereof, limitations on the time allotted to
questions or comments by participants and regulation of the opening and closing
of the polls for balloting on matters which are to be voted on by ballot.
Unless and to the extent determined by the Board of Directors or the chairman of
the meeting, meetings of stockholders shall not be required to be held in
accordance with rules of parliamentary procedure.

ARTICLE IV

DIRECTORS

SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of
directors of the corporation shall be fixed by the Board of Directors from time
to time. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If for any cause, the directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose in
the manner provided in these Bylaws.

SECTION 16. POWERS. The powers of the corporation shall be exercised,
its business conducted and its property controlled by the Board of Directors,
except as may be otherwise provided by statute or by the Certificate of
Incorporation.

SECTION 17. TERM OF DIRECTORS. Subject to the rights of the holders of
any series of Preferred Stock to elect additional directors under specified
circumstances, directors shall be elected at each annual meeting of stockholders
for a term of one year. Each director shall serve until his successor is duly
elected and qualified or until his death, resignation or removal. No decrease
in the number of directors constituting the Board of Directors shall shorten the
term of any incumbent director.

SECTION 18. VACANCIES. Unless otherwise provided in the Certificate of
Incorporation, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by stockholders, be filled only
by the affirmative vote of a majority of the directors then in office, even
though less than a quorum of the Board of Directors. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the director for which the vacancy was created or occurred and
until such director's successor shall have been elected and qualified. A
vacancy in the Board of Directors shall be deemed to exist under this Bylaw in
the case of the death, removal or resignation of any director.

6.
<PAGE>

SECTION 19. RESIGNATION. Any director may resign at any time by
delivering his written resignation to the Secretary, such resignation to specify
whether it will be effective at a particular time, upon receipt by the Secretary
or at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors. When
one or more directors shall resign from the Board of Directors, effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each Director so chosen shall hold office for the unexpired
portion of the term of the Director whose place shall be vacated and until his
successor shall have been duly elected and qualified.

SECTION 20. REMOVAL. Subject to the rights of the holders of any series
of Preferred Stock, the Board of Directors or any individual director may be
removed from office at any time (i) with cause by the affirmative vote of the
holders of a majority of the voting power of all the then-outstanding shares of
voting stock of the corporation, entitled to vote at an election of directors
(the "Voting Stock") or (ii) without cause by the affirmative vote of the
holders of at least a majority of the voting power of all the then-outstanding
shares of the Voting Stock.

SECTION 21. MEETINGS.

(a) ANNUAL MEETINGS. The annual meeting of the Board of
Directors shall be held immediately before or after the annual meeting of
stockholders and at the place where such meeting is held. No notice of an
annual meeting of the Board of Directors shall be necessary and such meeting
shall be held for the purpose of electing officers and transacting such other
business as may lawfully come before it.

(b) REGULAR MEETINGS. Except as hereinafter otherwise provided,
regular meetings of the Board of Directors shall be held in the office of the
corporation required to be maintained pursuant to Section 2 hereof. Unless
otherwise restricted by the Certificate of Incorporation, regular meetings of
the Board of Directors may also be held at any place within or without the State
of Delaware which has been designated by resolution of the Board of Directors or
the written consent of all directors.

(c) SPECIAL MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, special meetings of the Board of Directors may be
held at any time and place within or without the State of Delaware whenever
called by the Chairman of the Board, the President or any two of the directors.

(d) TELEPHONE MEETINGS. Any member of the Board of Directors,
or of any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall constitute presence in person at such meeting.

(e) NOTICE OF MEETINGS. Notice of the time and place of all
special meetings of the Board of Directors shall be orally or in writing, by
telephone, facsimile, telegraph or telex, during normal business hours, at least
twenty-four (24) hours before the date and time of the

7.
<PAGE>

meeting, or sent in writing to each director by first class mail, postage
prepaid, at least three (3) days before the date of the meeting. Notice of any
meeting may be waived in writing at any time before or after the meeting and
will be waived by any director by attendance thereat, except when the director
attends the meeting for the express purpose of objecting, at the beginning of
the meeting, to the transaction of any business because the meeting is not
lawfully called or convened.

(f) WAIVER OF NOTICE. The transaction of all business at any
meeting of the Board of Directors, or any committee thereof, however called or
noticed, or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present and if, either before
or after the meeting, each of the directors not present shall sign a written
waiver of notice. All such waivers shall be filed with the corporate records or
made a part of the minutes of the meeting.

SECTION 22. QUORUM AND VOTING.

(a) Unless the Certificate of Incorporation requires a greater
number and except with respect to indemnification questions arising under
Section 43 hereof, for which a quorum shall be one-third of the exact number of
directors fixed from time to time, a quorum of the Board of Directors shall
consist of a majority of the exact number of directors fixed from time to time
by the Board of Directors in accordance with the Certificate of Incorporation;
provided, however, at any meeting whether a quorum be present or otherwise, a
majority of the directors present may adjourn from time to time until the time
fixed for the next regular meeting of the Board of Directors, without notice
other than by announcement at the meeting.

(b) At each meeting of the Board of Directors at which a quorum
is present, all questions and business shall be determined by the affirmative
vote of a majority of the directors present, unless a different vote be required
by law, the Certificate of Incorporation or these Bylaws.

SECTION 23. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.

SECTION 24. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor.

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SECTION 25. COMMITTEES.

(a) EXECUTIVE COMMITTEE. The Board of Directors may by
resolution passed by a majority of the whole Board of Directors appoint an
Executive Committee to consist of one (1) or more members of the Board of
Directors. The Executive Committee, to the extent permitted by law and provided
in the resolution of the Board of Directors shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, including without limitation the power or
authority to declare a dividend, to authorize the issuance of stock and to adopt
a certificate of ownership and merger, and may authorize the seal of the
corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to amending the
Certificate of Incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of shares
of stock adopted by the Board of Directors fix the designations and any of the
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
or any other series of the same or any other class or classes of stock of the
corporation or fix the number of shares of any series of stock or authorize the
increase or decrease of the shares of any series), adopting an agreement of
merger or consolidation, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the corporation's property and assets,
recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the bylaws of the corporation.

(b) OTHER COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the whole Board of Directors, from time to time appoint
such other committees as may be permitted by law. Such other committees
appointed by the Board of Directors shall consist of one (1) or more members of
the Board of Directors and shall have such powers and perform such duties as may
be prescribed by the resolution or resolutions creating such committees, but in
no event shall such committee have the powers denied to the Executive Committee
in these Bylaws.

(c) TERM. Each member of a committee of the Board of Directors
shall serve a term on the committee coexistent with such member's term on the
Board of Directors. The Board of Directors, subject to the provisions of
subsections (a) or (b) of this Bylaw may at any time increase or decrease the
number of members of a committee or terminate the existence of a committee. The
membership of a committee member shall terminate on the date of his death or
voluntary resignation from the committee or from the Board of Directors. The
Board of Directors may at any time for any reason remove any individual
committee member and the Board of Directors may fill any committee vacancy
created by death, resignation, removal or increase in the number of members of
the committee. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee, and, in addition, in the absence or
disqualification of any member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member.

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(d) MEETINGS. Unless the Board of Directors shall otherwise
provide, regular meetings of the Executive Committee or any other committee
appointed pursuant to this Section 25 shall be held at such times and places as
are determined by the Board of Directors, or by any such committee, and when
notice thereof has been given to each member of such committee, no further
notice of such regular meetings need be given thereafter. Special meetings of
any such committee may be held at any place which has been determined from time
to time by such committee, and may be called by any director who is a member of
such committee, upon written notice to the members of such committee of the time
and place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of
any committee may be waived in writing at any time before or after the meeting
and will be waived by any director by attendance thereat, except when the
director attends such special meeting for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. A majority of the authorized number
of members of any such committee shall constitute a quorum for the transaction
of business, and the act of a majority of those present at any meeting at which
a quorum is present shall be the act of such committee.

SECTION 26. ORGANIZATION. At every meeting of the directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the President, or if the President is absent, the most senior Vice
President, or, in the absence of any such officer, a chairman of the meeting
chosen by a majority of the directors present, shall preside over the meeting.
The Secretary, or in his absence, an Assistant Secretary directed to do so by
the President, shall act as secretary of the meeting.

ARTICLE V

OFFICERS

SECTION 27. OFFICERS DESIGNATED. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, the Chief Executive Officer, the President, one or more Vice
Presidents, the Secretary, the Chief Financial Officer, the Treasurer, the
Controller, all of whom shall be elected at the annual organizational meeting of
the Board of Directors. The Board of Directors may also appoint one or more
Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such
other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may assign such additional titles to one or
more of the officers as it shall deem appropriate. Any one person may hold any
number of offices of the corporation at any one time unless specifically
prohibited therefrom by law. The salaries and other compensation of the
officers of the corporation shall be fixed by or in the manner designated by the
Board of Directors.

SECTION 28. TENURE AND DUTIES OF OFFICERS.

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time by the Board of Directors. If the office of any officer becomes vacant for
any reason, the vacancy may be filled by the Board of Directors.

(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman
of the Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. If there is no President, then the Chairman
of the Board of Directors shall also serve as the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in paragraph (c) of
this Section 28.

(c) DUTIES OF PRESIDENT. The President shall preside at all
meetings of the stockholders and at all meetings of the Board of Directors,
unless the Chairman of the Board of Directors has been appointed and is present.
Unless some other officer has been elected Chief Executive Officer of the
corporation, the President shall be the chief executive officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. The President shall perform other duties commonly incident to his
office and shall also perform such other duties and have such other powers as
the Board of Directors shall designate from time to time.

(d) DUTIES OF VICE PRESIDENTS. The Vice Presidents may assume
and perform the duties of the President in the absence or disability of the
President or whenever the office of President is vacant. The Vice Presidents
shall perform other duties commonly incident to their office and shall also
perform such other duties and have such other powers as the Board of Directors
or the President shall designate from time to time.

(e) DUTIES OF SECRETARY. The Secretary shall attend all
meetings of the stockholders and of the Board of Directors and shall record all
acts and proceedings thereof in the minute book of the corporation. The
Secretary shall give notice in conformity with these Bylaws of all meetings of
the stockholders and of all meetings of the Board of Directors and any committee
thereof requiring notice. The Secretary shall perform all other duties given
him in these Bylaws and other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors shall designate from time to time. The President may direct any
Assistant Secretary to assume and perform the duties of the Secretary in the
absence or disability of the Secretary, and each Assistant Secretary shall
perform other duties commonly incident to his office and shall also perform such
other duties and have such other powers as the Board of Directors or the
President shall designate from time to time.

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perform the duties of the Chief Financial Officer in the absence or disability
of the Chief Financial Officer, and each Treasurer and Assistant Treasurer and
each Controller and Assistant Controller shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time.

SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officer
or agent, notwithstanding any provision hereof.

SECTION 30. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.

SECTION 31. REMOVAL. Any officer may be removed from office at any
time, either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.

ARTICLE VI

EXECUTION OF CORPORATE INSTRUMENTS AND
VOTING OF SECURITIES OWNED BY THE CORPORATION

SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation.

Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and other
evidences of indebtedness of the corporation, and other corporate instruments or
documents requiring the corporate seal, and certificates of shares of stock of
the corporation, shall be executed, signed or endorsed by the Chairman of the
Board of Directors, or the President or any Vice President, and by the Secretary
or Treasurer or any Assistant Secretary or Assistant Treasurer. All other
instruments and documents requiring the corporate signature, but not requiring
the corporate seal, may be executed as aforesaid or in such other manner as may
be directed by the Board of Directors.

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All checks and drafts drawn on banks or other depositaries on funds to the
credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.

Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.

SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock
and other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President.

ARTICLE VII

SHARES OF STOCK

SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the name
of the corporation by the Chairman of the Board of Directors, or the President
or any Vice President and by the Treasurer or Assistant Treasurer or the
Secretary or Assistant Secretary, certifying the number of shares owned by him
in the corporation. Any or all of the signatures on the certificate may be
facsimiles. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue. Each certificate shall state
upon the face or back thereof, in full or in summary, all of the powers,
designations, preferences, and rights, and the limitations or restrictions of
the shares authorized to be issued or shall, except as otherwise required by
law, set forth on the face or back a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, designations,
preferences and relative, participating, optional, or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Within a reasonable time after
the issuance or transfer of uncertificated stock, the corporation shall send to
the registered owner thereof a written notice containing the information
required to be set forth or stated on certificates pursuant to this section or
otherwise required by law or with respect to this section a statement that the
corporation will furnish without charge to each stockholder who so requests the
powers, designations, preferences and relative participating, optional or oher
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Except as
otherwise expressly provided by law, the rights and obligations of the holders
of certificates representing stock of the same class and series shall be
identical.

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SECTION 35. LOST CERTIFICATES. A new certificate or certificates shall
be issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require or to
give the corporation a surety bond in such form and amount as it may direct as
indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost, stolen, or destroyed.

SECTION 36. TRANSFERS.

(a) Transfers of record of shares of stock of the corporation
shall be made only upon its books by the holders thereof, in person or by
attorney duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares.

(b) The corporation shall have power to enter into and perform
any agreement with any number of stockholders of any one or more classes of
stock of the corporation to restrict the transfer of shares of stock of the
corporation of any one or more classes owned by such stockholders in any manner
not prohibited by the General Corporation Law of Delaware.

SECTION 37. FIXING RECORD DATES.

(a) In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors, and which record date
shall not be more than sixty (60) nor less than ten (10) days before the date of
such meeting. If no record date is fixed by the Board of Directors, the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the day next preceding the
day on which notice is given, or if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held. A determination
of stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.

(b) In order that the corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than 10 days after the date upon
which the resolution fixing the record date is adopted by the Board of
Directors. Any stockholder of record seeking to have the stockholders authorize
or take corporate action by written consent shall, by written notice to the
Secretary, request the Board of Directors to fix a record date. The Board of
Directors shall promptly, but in all events within 10 days after the date on
which such a request is received, adopt a resolution fixing the record date. If
no record date has been fixed by the Board of Directors within 10 days of the
date on which such a request is received, the record date for determining
stockholders entitled to consent to corporate action in

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writing without a meeting, when no prior action by the Board of Directors is
required by applicable law, shall be the first date on which a signed written
consent setting forth the action taken or proposed to be taken is delivered to
the corporation by delivery to its registered office in the State of Delaware,
its principal place of business or an officer or agent of the corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board of Directors and prior action by the Board of
Directors is required by law, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting shall be at
the close of business on the day on which the Board of Directors adopts the
resolution taking such prior action.

(c) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty (60)
days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.

SECTION 38. REGISTERED STOCKHOLDERS. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of Delaware.

ARTICLE VIII

OTHER SECURITIES OF THE CORPORATION

SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered in Section 34), may be signed by the Chairman of the Board of
Directors, the President or any Vice President, or such other person as may be
authorized by the Board of Directors, and the corporate seal impressed thereon
or a facsimile of such seal imprinted thereon and attested by the signature of
the Secretary or an Assistant Secretary, or the Chief Financial Officer or
Treasurer or an Assistant Treasurer; provided, however, that where any such
bond, debenture or other corporate security shall be authenticated by the manual
signature, or where permissible facsimile signature, of a trustee under an
indenture pursuant to which such bond, debenture or other corporate security
shall be issued, the signatures of the persons signing and attesting the
corporate seal on such bond, debenture or other corporate security may be the
imprinted facsimile of the signatures of such persons. Interest coupons
appertaining to any such bond, debenture or other corporate security,
authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an
Assistant Treasurer of the corporation or such other person as may be authorized
by the Board of Directors, or bear imprinted thereon the facsimile signature of
such person. In case any officer

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who shall have signed or attested any bond, debenture or other corporate
security, or whose facsimile signature shall appear thereon or on any such
interest coupon, shall have ceased to be such officer before the bond, debenture
or other corporate security so signed or attested shall have been delivered,
such bond, debenture or other corporate security nevertheless may be adopted by
the corporation and issued and delivered as though the person who signed the
same or whose facsimile signature shall have been used thereon had not ceased to
be such officer of the corporation.

ARTICLE IX

DIVIDENDS

SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the capital stock
of the corporation, subject to the provisions of the Certificate of
Incorporation, if any, may be declared by the Board of Directors pursuant to law
at any regular or special meeting. Dividends may be paid in cash, in property,
or in shares of the capital stock, subject to the provisions of the Certificate
of Incorporation.

SECTION 41. DIVIDEND RESERVE. Before payment of any dividend, there may
be set aside out of any funds of the corporation available for dividends such
sum or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.

ARTICLE X

FISCAL YEAR

SECTION 42. FISCAL YEAR. Unless otherwise fixed by resolution of the
Board of Directors, the fiscal year of the corporation shall end on the 31st day
of December in each calendar year.

ARTICLE XI

INDEMNIFICATION

SECTION 43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER
OFFICERS, EMPLOYEES AND OTHER AGENTS.

(a) DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall
indemnify its directors and executive officers (for the purposes of this Article
XI, "executive officers shall have the meaning defined in Rule 3b7 promulgated
under the 1934 Act) to the fullest extent not prohibited by the Delaware General
Corporation Law; provided, however, that the corporation may modify the extent
of such indemnification by individual contracts with its directors and executive
officers; and, provided, further, that the corporation shall not be required to
indemnify any director or executive officer in connection with any proceeding
(or part thereof) initiated by

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such person unless (i) such indemnification is expressly required to be made by
law, (ii) the proceeding was authorized by the Board of Directors of the
corporation, (iii) such indemnification is provided by the corporation, in its
sole discretion, pursuant to the powers vested in the corporation under the
Delaware General Corporation Law or (iv) such indemnification is required to be
made under subsection (d).

(b) OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The corporation
shall have power to indemnify its other officers, employees and other agents as
set forth in the Delaware General Corporation Law.

(c) EXPENSES. The corporation shall advance to any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that he is or was a director or
executive officer of the corporation, or is or was serving at the request of the
corporation as a director or executive officer of another corporation,
partnership, joint venture, trust or other enterprise, prior to the final
disposition of the proceeding, promptly following request therefor, all expenses
incurred by any director or executive officer in connection with such proceeding
upon receipt of an undertaking by or on behalf of such person to repay said
amounts if it should be determined ultimately that such person is not entitled
to be indemnified under this Bylaw or otherwise.

Notwithstanding the foregoing, unless otherwise determined pursuant
to paragraph (e) of this Bylaw, no advance shall be made by the corporation to
an executive officer of the corporation (except by reason of the fact that such
executive officer is or was a director of the corporation in which event this
paragraph shall not apply) in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, if a determination is reasonably and
promptly made (i) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to the proceeding, or (ii) if such
quorum is not obtainable, or, even if obtainable, a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, that
the facts known to the decision-making party at the time such determination is
made demonstrate clearly and convincingly that such person acted in bad faith or
in a manner that such person did not believe to be in or not opposed to the best
interests of the corporation.

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whether civil, criminal, administrative or investigative, by reason of the fact
that such executive officer is or was a director of the corporation) for
advances, the corporation shall be entitled to raise a defense as to any such
action clear and convincing evidence that such person acted in bad faith or in a
manner that such person did not believe to be in or not opposed to the best
interests of the corporation, or with respect to any criminal action or
proceeding that such person acted without reasonable cause to believe that his
conduct was lawful. Neither the failure of the corporation (including its Board
of Directors, independent legal counsel or its stockholders) to have made a
determination prior to the commencement of such actionthat indemnification of
the claimant is proper in the circumstances because he has met the applicable
standard of conduct set forth in the Delaware General Corporation Law, nor an
actual determination by the corporation (including its Board of Directors,
independent legal counsel or its stockholders) that the claimant has not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that claimant has not met the applicable standard of conduct.

(e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any
person by this Bylaw shall not be exclusive of any other right which such person
may have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is
specifically authorized to enter into individual contracts with any or all of
its directors, officers, employees or agents respecting indemnification and
advances, to the fullest extent not prohibited by the Delaware General
Corporation Law.

(f) SURVIVAL OF RIGHTS. The rights conferred on any person by
this Bylaw shall continue as to a person who has ceased to be a director,
officer, employee or other agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.

(g) INSURANCE. To the fullest extent permitted by the Delaware
General Corporation Law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this Bylaw.

(h) AMENDMENTS. Any repeal or modification of this Bylaw shall
only be prospective and shall not affect the rights under this Bylaw in effect
at the time of the alleged occurrence of any action or omission to act that is
the cause of any proceeding against any agent of the corporation.

(i) SAVING CLAUSE. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and executive officer to
the full extent not prohibited by any applicable portion of this Bylaw that
shall not have been invalidated, or by any other applicable law.

(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the
following definitions shall apply:

(i) The term "proceeding" shall be broadly construed and
shall include, without limitation, the investigation, preparation, prosecution,
defense, settlement,

18.
<PAGE>

arbitration and appeal of, and the giving of testimony in, any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative.

(ii) The term "expenses" shall be broadly construed and
shall include, without limitation, court costs, attorneys' fees, witness fees,
fines, amounts paid in settlement or judgment and any other costs and expenses
of any nature or kind incurred in connection with any proceeding.

(iii) The term the "corporation" shall include, in addition
to the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
the provisions of this Bylaw with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.

(iv) References to a "director," "executive officer,"
"officer," "employee," or "agent" of the corporation shall include, without
limitation, situations where such person is serving at the request of the
corporation as, respectively, a director, executive officer, officer, employee,
trustee or agent of another corporation, partnership, joint venture, trust or
other enterprise.

(v) References to "other enterprises" shall include
employee benefit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and references to
"serving at the request of the corporation" shall include any service as a
director, officer, employee or agent of the corporation which imposes duties on,
or involves services by, such director, officer, employee, or agent with respect
to an employee benefit plan, its participants, or beneficiaries; and a person
who acted in good faith and in a manner he reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Bylaw.

ARTICLE XII

NOTICES

SECTION 44. NOTICES.

(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of
these Bylaws, notice is required to be given to any stockholder, it shall be
given in writing, timely and duly deposited in the United States mail, postage
prepaid, and addressed to his last known post office address as shown by the
stock record of the corporation or its transfer agent.

(b) NOTICE TO DIRECTORS. Any notice required to be given to any
director may be given by the method stated in subsection (a), or by facsimile,
telex or telegram, except that

19.
<PAGE>

such notice other than one which is delivered personally shall be sent to such
address as such director shall have filed in writing with the Secretary, or, in
the absence of such filing, to the last known post office address of such
director.

(c) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by
a duly authorized and competent employee of the corporation or its transfer
agent appointed with respect to the class of stock affected, specifying the name
and address or the names and addresses of the stockholder or stockholders, or
director or directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall in the absence of fraud, be prima
facie evidence of the facts therein contained.

(d) TIME NOTICES DEEMED GIVEN. All notices given by mail, as
above provided, shall be deemed to have been given as at the time of mailing,
and all notices given by facsimile, telex or telegram shall be deemed to have
been given as of the sending time recorded at time of transmission.

(e) METHODS OF NOTICE. It shall not be necessary that the same
method of giving notice be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.

(f) FAILURE TO RECEIVE NOTICE. The period or limitation of time
within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any director may
exercise any power or right, or enjoy any privilege, pursuant to any notice sent
him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such director to receive such
notice.

(g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL.
Whenever notice is required to be given, under any provision of law or of the
Certificate of Incorporation or Bylaws of the corporation, to any person with
whom communication is unlawful, the giving of such notice to such person shall
not be required and there shall be no duty to apply to any governmental
authority or agency for a license or permit to give such notice to such person.
Any action or meeting which shall be taken or held without notice to any such
person with whom communication is unlawful shall have the same force and effect
as if such notice had been duly given. In the event that the action taken by
the corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate shall state,
if such is the fact and if notice is required, that notice was given to all
persons entitled to receive notice except such persons with whom communication
is unlawful.

20.
<PAGE>

such person shall not be required. Any action or meeting which shall be taken
or held without notice to such person shall have the same force and effect as if
such notice had been duly given. If any such person shall deliver to the
corporation a written notice setting forth his then current address, the
requirement that notice be given to such person shall be reinstated. In the
event that the action taken by the corporation is such as to require the filing
of a certificate under any provision of the Delaware General Corporation Law,
the certificate need not state that notice was not given to persons to whom
notice was not required to be given pursuant to this paragraph.

ARTICLE XIII

AMENDMENTS

SECTION 45. AMENDMENTS.

Subject to paragraph (h) of Section 43 of the Bylaws, these Bylaws may be
amended or repealed and new Bylaws adopted by the stockholders entitled to vote.
The Board of Directors shall also have the power, if such power is conferred
upon the Board of Directors by the Certificate of Incorporation, to adopt,
amend, or repeal Bylaws (including, without limitation, the amendment of any
Bylaw setting forth the number of Directors who shall constitute the whole Board
of Directors).

ARTICLE XIV

RIGHT OF FIRST REFUSAL

SECTION 46. RIGHT OF FIRST REFUSAL. No stockholder shall sell, assign,
pledge, or in any manner transfer any of the shares of stock of the corporation
or any right or interest therein, whether voluntarily or by operation of law, or
by gift or otherwise, except by a transfer which meets the requirements
hereinafter set forth in this bylaw:

(a) If the stockholder desires to sell or otherwise transfer any
of his shares of stock, then the stockholder shall first give written notice
thereof to the corporation. The notice shall name the proposed transferee and
state the number of shares to be transferred, the proposed consideration, and
all other terms and conditions of the proposed transfer.

(b) For thirty (30) days following receipt of such notice, the
corporation shall have the option to purchase all (but not less than all) of the
shares specified in the notice at the price and upon the terms set forth in such
notice; provided, however, that, with the consent of the stockholder, the
corporation shall have the option to purchase a lesser portion of the shares
specified in said notice at the price and upon the terms set forth therein. In
the event of a gift, property settlement or other transfer in which the proposed
transferee is not paying the full price for the shares, and that is not
otherwise exempted from the provisions of this Section 46, the price shall be
deemed to be the fair market value of the stock at such time as determined in
good faith by the Board of Directors. In the event the corporation elects to
purchase all of the shares or, with consent of the stockholder, a lesser portion
of the shares, it shall give written notice to the transferring stockholder of
its election and settlement for said shares shall be made as provided below in
paragraph (d).

21.
<PAGE>

(d) In the event the corporation and/or its assignee(s) elect to
acquire any of the shares of the transferring stockholder as specified in said
transferring stockholder's notice, the Secretary of the corporation shall so
notify the transferring stockholder and settlement thereof shall be made in cash
within thirty (30) days after the Secretary of the corporation receives said
transferring stockholder's notice; provided that if the terms of payment set
forth in said transferring stockholder's notice were other than cash against
delivery, the corporation and/or its assignee(s) shall pay for said shares on
the same terms and conditions set forth in said transferring stockholder's
notice.

(e) In the event the corporation and/or its assignees(s) do not
elect to acquire all of the shares specified in the transferring stockholder's
notice, said transferring stockholder may, within the sixty-day period following
the expiration of the option rights granted to the corporation and/or its
assignees(s) herein, transfer the shares specified in said transferring
stockholder's notice which were not acquired by the corporation and/or its
assignees(s) as specified in said transferring stockholder's notice. All shares
so sold by said transferring stockholder shall continue to be subject to the
provisions of this bylaw in the same manner as before said transfer.

(f) Anything to the contrary contained herein notwithstanding,
the following transactions shall be exempt from the provisions of this bylaw:

(1) A stockholder's transfer of any or all shares held
either during such stockholder's lifetime or on death by will or intestacy to
such stockholder's immediate family or to any custodian or trustee for the
account of such stockholder or such stockholder's immediate family. "Immediate
family" as used herein shall mean spouse, domestic partner (as defined below),
lineal descendant, father, mother, brother, or sister of the stockholder making
such transfer.

(i) For purposes of this Section, "domestic
partners" (or, individually, a "domestic partner") shall mean (a) any two adults
who have registered as domestic partners on a registry maintained by a
government entity; or (b) any two adults who (i) have chosen to share one
another's lives in an intimate and committed relationship of mutual caring, (ii)
live together, (iii) have agreed to be jointly responsible for basic living
expenses incurred during the domestic partnership and (iv) have provided the
corporation with a written declaration of domestic partnership in the form and
within the time frame specified below.

(ii) The declaration of domestic partnership shall
set forth the name of the shareholder and his or her domestic partner, shall
state that the shareholder and his or her domestic partner meet the definition
of domestic partners as set forth above and shall be executed by the shareholder
and his or her domestic partner.

(iii) The declaration of domestic partnership must be
received by the corporation at the time that a person becomes a shareholder of
the corporation or at least twelve (12) months prior to a transfer of shares of
stock of the corporation under this Section 64 by a shareholder to his or her
domestic partner.

22.
<PAGE>

(2) A stockholder's bona fide pledge or mortgage of any
shares with a commercial lending institution, provided that any subsequent
transfer of said shares by said institution shall be conducted in the manner set
forth in this bylaw.

(3) A stockholder's transfer of any or all of such
stockholder's shares to the corporation or to any other stockholder of the
corporation.

(4) A stockholder's transfer of any or all of such
stockholder's shares to a person who, at the time of such transfer, is an
officer or director of the corporation.

(5) A corporate stockholder's transfer of any or all of its
shares pursuant to and in accordance with the terms of any merger,
consolidation, reclassification of shares or capital reorganization of the
corporate stockholder, or pursuant to a sale of all or substantially all of the
stock or assets of a corporate stockholder.

(6) A corporate stockholder's transfer of any or all of its
shares to any or all of its stockholders.

(7) A transfer by a stockholder which is a limited or
general partnership to any or all of its partners or former partners.

In any such case, the transferee, assignee, or other recipient shall
receive and hold such stock subject to the provisions of this bylaw, and there
shall be no further transfer of such stock except in accord with this bylaw.

(g) The provisions of this bylaw may be waived with respect to
any transfer either by the corporation, upon duly authorized action of its Board
of Directors, or by the stockholders, upon the express written consent of the
owners of a majority of the voting power of the corporation (excluding the votes
represented by those shares to be transferred by the transferring stockholder).
This bylaw may be amended or repealed either by a duly authorized action of the
Board of Directors or by the stockholders, upon the express written consent of
the owners of a majority of the voting power of the corporation.

(h) Any sale or transfer, or purported sale or transfer, of
securities of the corporation shall be null and void unless the terms,
conditions, and provisions of this bylaw are strictly observed and followed.

(i) The foregoing right of first refusal shall terminate on
either of the following dates, whichever shall first occur:

(1) On November 1, 2005; or

(2) Upon the date securities of the corporation are first
offered to the public pursuant to a registration statement filed with, and
declared effective by, the United States Securities and Exchange Commission
under the Securities Act of 1933, as amended.

23.
<PAGE>

(j) The certificates representing shares of stock of the
corporation shall bear on their face the following legend so long as the
foregoing right of first refusal remains in effect:

"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT
OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION AND/OR ITS
ASSIGNEE(S), AS PROVIDED IN THE BYLAWS OF THE CORPORATION."

(k) The provisions of this Section 64 shall not apply to any
stockholder so long as such stockholder (i) holds more than four million
(4,000,000) shares of the capital stock of the corporation and (ii) is a party
to a tag along rights agreement with the corporation under which (A) such
stockholder agrees to notify the corporation prior to any sale of shares of
capital stock of the corporation by such stockholder, (B) such stockholder
agrees to permit all other stockholders of the corporation to sell their pro
rata share of capital stock as part of such sale and (C) it is agreed that the
tag along rights of the stockholders can be waived by the Board of Directors of
the corporation.

ARTICLE XV

LOANS TO OFFICERS

SECTION 47. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance
may be with or without interest and may be unsecured, or secured in such manner
as the Board of Directors shall approve, including, without limitation, a pledge
of shares of stock of the corporation. Nothing in these Bylaws shall be deemed
to deny, limit or restrict the powers of guaranty or warranty of the corporation
at common law or under any statute.

ARTICLE XVI

MISCELLANEOUS

SECTION 48. ANNUAL REPORT.

(a) Subject to the provisions of paragraph (b) of this Bylaw,
the Board of Directors shall cause an annual report to be sent to each
stockholder of the corporation not later than one hundred twenty (120) days
after the close of the corporation's fiscal year. Such report shall include a
balance sheet as of the end of such fiscal year and an income statement and
statement of changes in financial position for such fiscal year, accompanied by
any report thereon of independent accounts or, if there is no such report, the
certificate of an authorized officer of the corporation that such statements
were prepared without audit from the books and records of the corporation. When
there are more than 100 stockholders of record of the corporation's shares, as
determined by Section 605 of the California Corporations Code, additional
information as required by Section 1501(b) of the California Corporations Code
shall also be contained in such report, provided that if the corporation has a
class of securities

24.
<PAGE>

registered under Section 12 of the 1934 Act, that Act shall take precedence.
Such report shall be sent to stockholders at least fifteen (15) days prior to
the next annual meeting of stockholders after the end of the fiscal year to
which it relates.

(b) If and so long as there are fewer than 100 holders of record
of the corporation's shares, the requirement of sending of an annual report to
the stockholders of the corporation is hereby expressly waived.

25.

<PAGE>

AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
SCIENTIFIC LEARNING CORPORATION

SHERYLE J. BOLTON hereby certifies that:

2. She is the duly elected and acting President and Chief Executive Officer of
this corporation.

3. The Amended and Restated Certificate of Incorporation of this corporation
is hereby amended and restated to read as follows:

The name of this corporation is Scientific Learning Corporation (the "Company").

II.

III.

The purpose of the Company is to engage in any lawful act or activity for
which a corporation may be organized under the General Corporation Law of the
State of Delaware.

IV.

<PAGE>

B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized by filing a certificate
pursuant to the Delaware General Corporation Law, to fix or alter from time to
time the designation, powers, preferences and rights of the shares of each such
series and the qualifications, limitations or restrictions of any wholly
unissued series of Preferred Stock, and to establish from time to time the
number of shares constituting any such series or any of them; and to increase or
decrease the number of shares of any series subsequent to the issuance of shares
of that series, but not below the number of shares of such series then
outstanding. In case the number of shares of any series shall be decreased in
accordance with the foregoing sentence, the shares constituting such decrease
shall resume the status that they had prior to the adoption of the resolution
originally fixing the number of shares of such series.

For the management of the business and for the conduct of the affairs of
the Company, and in further definition, limitation and regulation of the powers
of the Company, of its directors and of its stockholders or any class thereof,
as the case may be, it is further provided that:

1. The management of the business and the conduct of the affairs of
the Company shall be vested in its Board of Directors. The number of directors
which shall constitute the whole Board of Directors shall be fixed exclusively
by one or more resolutions adopted by the Board of Directors.

2. Subject to the rights of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances, following the
closing of an initial public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, (the "1933 Act"),
covering the offer and sale of Common Stock to the public (the "Initial Public
Offering"), the directors shall be divided into three classes, designated as
Class I, Class II and Class III, respectively. Directors shall be assigned to
each class in accordance with a resolution or resolutions adopted by the Board
of Directors. At the first annual meeting of stockholders following the closing
of the Initial Public Offering, the term of office of the Class I directors
shall expire and Class I directors shall be elected for a full term of three
years. At the second annual meeting of stockholders following the closing of
the Initial Public Offering, the term of office of the Class II directors shall
expire and Class II directors shall be elected for a full term of three years.
At the third annual meeting of stockholders following the closing of the Initial
Public Offering, the term of office of the Class III directors shall expire and
Class III directors shall be elected for a full term of three years. At each
succeeding annual meeting of stockholders, directors shall be elected for a full
term of three years to succeed the directors of the class whose terms expire at
such annual meeting.

3. a. Subject to the rights of the holders of any series of
Preferred Stock, the Board of Directors or any individual director may be
removed from office at any time (i) with cause by the affirmative vote of the
holders of a majority of the voting power of all the then-outstanding shares of
voting stock of the corporation, entitled to vote at an election of directors
(the "Voting Stock") or (ii) without cause by the affirmative vote of the
holders of at

<PAGE>

least sixty-six and two-thirds percent (66 2/3%) of the voting power of all the
then-outstanding shares of the Voting Stock.

b. Subject to the rights of the holders of any series of
Preferred Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by the stockholders, except as
otherwise provided by law, be filled only by the affirmative vote of a majority
of the directors then in office, even though less than a quorum of the Board of
Directors, and not by the stockholders. Any director elected in accordance with
the preceding sentence shall hold office for the remainder of the full term of
the director for which the vacancy was created or occurred and until such
director's successor shall have been elected and qualified.

4. Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws
may be altered or amended or new Bylaws adopted by the affirmative vote of at
least sixty-six and two-thirds percent (66-2/3%) of the Voting Stock of all of
the then-outstanding shares of the voting stock of the Company entitled to vote.
The Board of Directors shall also have the power to adopt, amend, or repeal
Bylaws.

5. The directors of the Company need not be elected by written
ballot unless the Bylaws so provide.

6. No action shall be taken by the stockholders of the Company
except at an annual or special meeting of stockholders called in accordance with
the Bylaws, or by written consent of stockholders in accordance with the Bylaws
prior to the closing of the Initial Public Offering, and following the closing
of the Initial Public Offering no action shall be taken by the stockholders by
written consent.

7. Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the Company shall be given in the manner provided in the
Bylaws of the Company.

VI.

A. A director of the Company shall not be personally liable to the
Company or its stockholders for monetary damages for any breach of fiduciary
duty as a director, except for liability (1) for any breach of the director's
duty of loyalty to the Company or its stockholders, (2) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law (3) under Section 174 of the Delaware General Corporation Law, or (4) for
any transaction from which the director derived an improper personal benefit.
If the Delaware General Corporation Law is amended after approval by the
stockholders of this Article VI to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director shall be eliminated or limited to the fullest extent permitted by
the Delaware General Corporation Law, as so amended.

<PAGE>

B. Any repeal or modification of this Article VI shall be prospective and
shall not affect the rights under this Article VI in effect at the time of the
alleged occurrence of any act or omission to act giving rise to liability or
indemnification.

VII.

A. The Company reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, except as provided in paragraph B. of this
Article VII, and all rights conferred upon the stockholders herein are granted
subject to this reservation.

B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the voting stock of the Company required by law,
this Certificate of Incorporation or any certificate of designation of Preferred
Stock, the affirmative vote of the holders of at least sixty-six and two-thirds
percent (66-2/3%) of the Voting Stock of all of the then-outstanding shares of
the voting stock, voting together as a single class, shall be required to alter,
amend or repeal Articles V, VI, and VII."

<PAGE>

4. This Amended and Restated Certificate of Incorporation has been duly
approved by the Board of Directors of this corporation.

5. This Amended and Restated Certificate of Incorporation has been duly
adopted in accordance with the provisions of Section 228 and 245 of the
General Corporation Law of the State of Delaware by the stockholders of this
corporation.

IN WITNESS WHEREOF, Scientific Learning Corporation has caused this Amended
and Restated Certificate of Incorporation to be signed by its President and
Chief Executive Officer and attested to by its Secretary in Berkeley, California
this ____ day of _______________, 1998.

SCIENTIFIC LEARNING CORPORATION

By:
---------------------------------------
SHERYLE J. BOLTON
President and Chief Executive Officer

<PAGE>

AMENDED AND RESTATED

BYLAWS

SCIENTIFIC LEARNING CORPORATION

(A DELAWARE CORPORATION)

<PAGE>

TABLE OF CONTENTS

PAGE

<S> <C>
ARTICLE I OFFICES. . . . . . . . . . . . . . . . . . . . . . . . . 1

Section 1. Registered Office. . . . . . . . . . . . . . . . . . . . . 1

Section 2. Other Offices. . . . . . . . . . . . . . . . . . . . . . . 1

ARTICLE II CORPORATE SEAL . . . . . . . . . . . . . . . . . . . . . 1

Section 3. Corporate Seal . . . . . . . . . . . . . . . . . . . . . . 1

ARTICLE III STOCKHOLDERS' MEETINGS . . . . . . . . . . . . . . . . . 1

Section 4. Place of Meetings. . . . . . . . . . . . . . . . . . . . . 1

Section 5. Annual Meeting . . . . . . . . . . . . . . . . . . . . . . 1

Section 6. Special Meetings . . . . . . . . . . . . . . . . . . . . . 3

Section 7. Notice of Meetings . . . . . . . . . . . . . . . . . . . . 4

Section 8. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Section 9. Adjournment and Notice of Adjourned Meetings . . . . . . . 4

Section 10. Voting Rights. . . . . . . . . . . . . . . . . . . . . . . 5

Section 11. Joint Owners of Stock. . . . . . . . . . . . . . . . . . . 5

Section 12. List of Stockholders . . . . . . . . . . . . . . . . . . . 5

Section 13. Action Without Meeting . . . . . . . . . . . . . . . . . . 5

Section 14. Organization . . . . . . . . . . . . . . . . . . . . . . . 6

ARTICLE IV DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . 6

Section 15. Number and Term of Office. . . . . . . . . . . . . . . . . 6

Section 16. Powers . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Section 17. Classes Of Directors.. . . . . . . . . . . . . . . . . . . 6

Section 18. Vacancies. . . . . . . . . . . . . . . . . . . . . . . . . 7

Section 19. Resignation. . . . . . . . . . . . . . . . . . . . . . . . 7

Section 20. Removal. . . . . . . . . . . . . . . . . . . . . . . . . . 7

Section 21. Meetings . . . . . . . . . . . . . . . . . . . . . . . . . 7

Section 22. Quorum and Voting. . . . . . . . . . . . . . . . . . . . . 8

Section 23. Action Without Meeting . . . . . . . . . . . . . . . . . . 9

Section 24. Fees and Compensation. . . . . . . . . . . . . . . . . . . 9

Section 25. Committees . . . . . . . . . . . . . . . . . . . . . . . . 9

</TABLE>

<PAGE>

PAGE

<S> <C>
Section 26. Organization . . . . . . . . . . . . . . . . . . . . . . .10

ARTICLE V OFFICERS . . . . . . . . . . . . . . . . . . . . . . . .10

Section 27. Officers Designated. . . . . . . . . . . . . . . . . . . .10

Section 28. Tenure and Duties of Officers. . . . . . . . . . . . . . .11

Section 29. Delegation of Authority. . . . . . . . . . . . . . . . . .12

Section 30. Resignations . . . . . . . . . . . . . . . . . . . . . . .12

Section 31. Removal. . . . . . . . . . . . . . . . . . . . . . . . . .12

ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS AND VOTING
OF SECURITIES OWNED BY THE CORPORATION . . . . . . . . .12

Section 32. Execution of Corporate Instruments . . . . . . . . . . . .12

Section 33. Voting of Securities Owned by the Corporation. . . . . . .13

ARTICLE VII SHARES OF STOCK. . . . . . . . . . . . . . . . . . . . .13

Section 34. Form and Execution of Certificates . . . . . . . . . . . .13

Section 35. Lost Certificates. . . . . . . . . . . . . . . . . . . . .14

Section 36. Transfers. . . . . . . . . . . . . . . . . . . . . . . . .14

Section 37. Fixing Record Dates. . . . . . . . . . . . . . . . . . . .14

Section 38. Registered Stockholders. . . . . . . . . . . . . . . . . .15

ARTICLE VIII OTHER SECURITIES OF THE CORPORATION. . . . . . . . . . .15

Section 39. Execution of Other Securities. . . . . . . . . . . . . . .15

ARTICLE IX DIVIDENDS. . . . . . . . . . . . . . . . . . . . . . . .16

Section 40. Declaration of Dividends . . . . . . . . . . . . . . . . .16

Section 41. Dividend Reserve . . . . . . . . . . . . . . . . . . . . .16

ARTICLE X FISCAL YEAR. . . . . . . . . . . . . . . . . . . . . . .16

Section 42. Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . .16

ARTICLE XI INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . .16

Section 43. Indemnification of Directors, Executive Officers,
Other Officers, Employees and Other Agents. . . . . .16

ARTICLE XII NOTICES. . . . . . . . . . . . . . . . . . . . . . . . .19

Section 44. Notices. . . . . . . . . . . . . . . . . . . . . . . . . .19

</TABLE>

ii.

<PAGE>

PAGE

<S> <C>
ARTICLE XIII AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . .21

Section 45. Amendments . . . . . . . . . . . . . . . . . . . . . . . .21

ARTICLE XIV LOANS TO OFFICERS. . . . . . . . . . . . . . . . . . . .21

Section 46. Loans to Officers. . . . . . . . . . . . . . . . . . . . .21

</TABLE>

iii.

<PAGE>

AMENDED AND RESTATED

BYLAWS

SCIENTIFIC LEARNING CORPORATION

(A DELAWARE CORPORATION)

ARTICLE I

OFFICES

SECTION 1. REGISTERED OFFICE. The registered office of the corporation
in the State of Delaware shall be in the City of Dover, County of Kent.

ARTICLE II

CORPORATE SEAL

ARTICLE III

STOCKHOLDERS' MEETINGS

SECTION 5. ANNUAL MEETING.

<PAGE>

(b) At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. To
be properly brought before an annual meeting, business must be: (A) specified
in the notice of meeting (or any supplement thereto) given by or at the
direction of the Board of Directors, (B) otherwise properly brought before the
meeting by or at the direction of the Board of Directors, or (C) otherwise
properly brought before the meeting by a stockholder. For business to be
properly brought before an annual meeting by a stockholder, the stockholder must
have given timely notice thereof in writing to the Secretary of the corporation.
To be timely, a stockholder's notice must be delivered to or mailed and received
at the principal executive offices of the corporation not later than the close
of business on the sixtieth (60th) day nor earlier than the close of business on
the ninetieth (90th) day prior to the first anniversary of the preceding year's
annual meeting; PROVIDED, HOWEVER, that in the event that no annual meeting was
held in the previous year or the date of the annual meeting has been changed by
more than thirty (30) days from the date contemplated at the time of the
previous year's proxy statement, notice by the stockholder to be timely must be
so received not earlier than the close of business on the ninetieth (90th) day
prior to such annual meeting and not later than the close of business on the
later of the sixtieth (60th) day prior to such annual meeting or, in the event
public announcement of the date of such annual meeting is first made by the
corporation fewer than seventy (70) days prior to the date of such annual
meeting, the close of business on the tenth (10th) day following the day on
which public announcement of the date of such meeting is first made by the
corporation. A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting: (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and address, as they appear on the corporation's books, of the stockholder
proposing such business, (iii) the class and number of shares of the corporation
which are beneficially owned by the stockholder, (iv) any material interest of
the stockholder in such business and (v) any other information that is required
to be provided by the stockholder pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), in his capacity as
a proponent to a stockholder proposal. Notwithstanding the foregoing, in order
to include information with respect to a stockholder proposal in the proxy
statement and form of proxy for a stockholders' meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
conducted at any annual meeting except in accordance with the procedures set
forth in this paragraph (b). The chairman of the annual meeting shall, if the
facts warrant, determine and declare at the meeting that business was not
properly brought before the meeting and in accordance with the provisions of
this paragraph (b), and, if he should so determine, he shall so declare at the
meeting that any such business not properly brought before the meeting shall not
be transacted.

(c) Only persons who are nominated in accordance with the
procedures set forth in this paragraph (c) shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors of the
corporation may be made at a meeting of stockholders by or at the direction of
the Board of Directors or by any stockholder of the corporation entitled to vote
in the election of directors at the meeting who complies with the notice
procedures set forth in this paragraph (c). Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made pursuant to
timely notice in writing to the Secretary of the corporation in accordance with
the provisions of paragraph (b) of this Section 5. Such

2.
<PAGE>

stockholder's notice shall set forth (i) as to each person, if any, whom the
stockholder proposes to nominate for election or re-election as a director:
(A) the name, age, business address and residence address of such person,
(B) the principal occupation or employment of such person, (C) the class and
number of shares of the corporation which are beneficially owned by such person,
(D) a description of all arrangements or understandings between the stockholder
and each nominee and any other person or persons (naming such person or persons)
pursuant to which the nominations are to be made by the stockholder, and (E) any
other information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the 1934 Act (including without
limitation such person's written consent to being named in the proxy statement,
if any, as a nominee and to serving as a director if elected); and (ii) as to
such stockholder giving notice, the information required to be provided pursuant
to paragraph (b) of this Section 5. At the request of the Board of Directors,
any person nominated by a stockholder for election as a director shall furnish
to the Secretary of the corporation that information required to be set forth in
the stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a director of the corporation unless nominated
in accordance with the procedures set forth in this paragraph (c). The chairman
of the meeting shall, if the facts warrant, determine and declare at the meeting
that a nomination was not made in accordance with the procedures prescribed by
these Bylaws, and if he should so determine, he shall so declare at the meeting,
and the defective nomination shall be disregarded.

(d) For purposes of this Section 5, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the 1934 Act.

SECTION 6. SPECIAL MEETINGS.

(a) Special meetings of the stockholders of the corporation may
be called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exists any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board of
Directors for adoption) and shall be held at such place, on such date, and at
such time as the Board of Directors, shall fix.

3.
<PAGE>

request, the person or persons requesting the meeting may set the time and place
of the meeting and give the notice. Nothing contained in this paragraph (b)
shall be construed as limiting, fixing, or affecting the time when a meeting of
stockholders called by action of the Board of Directors may be held.

SECTION 8. QUORUM. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. In the absence of a
quorum, any meeting of stockholders may be adjourned, from time to time, either
by the chairman of the meeting or by vote of the holders of a majority of the
shares represented thereat, but no other business shall be transacted at such
meeting. The stockholders present at a duly called or convened meeting, at
which a quorum is present, may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum. Except as otherwise provided by law, the Certificate of Incorporation
or these Bylaws, all action taken by the holders of a majority of the vote cast,
excluding abstentions, at any meeting at which a quorum is present shall be
valid and binding upon the corporation; PROVIDED, HOWEVER, that directors shall
be elected by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors. Where a separate vote by a class or classes or series is required,
except where otherwise provided by the statute or by the Certificate of
Incorporation or these Bylaws, a majority of the outstanding shares of such
class or classes or series, present in person or represented by proxy, shall
constitute a quorum entitled to take action with respect to that vote on that
matter and, except where otherwise provided by statute or by the Certificate of
Incorporation or these Bylaws, the affirmative vote of the majority (plurality,
in the case of the election of directors) of the votes cast, including
abstentions, by the holders of shares of such class or classes or series shall
be the act of such class or classes or series.

<PAGE>

which might have been transacted at the original meeting. If the adjournment is
for more than thirty (30) days or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.

SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote shall have the right to do so either in person or by an
agent or agents authorized by a proxy granted in accordance with Delaware law.
An agent so appointed need not be a stockholder. No proxy shall be voted after
three (3) years from its date of creation unless the proxy provides for a longer
period.

SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make,
at least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at said meeting, arranged in alphabetical
order, showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of meeting during the whole time thereof
and may be inspected by any stockholder who is present.

SECTION 13. ACTION WITHOUT MEETING. No action shall be taken by the
stockholders except at an annual or special meeting of stockholders called in
accordance with these Bylaws, and no action shall be taken by the stockholders
by written consent.

<PAGE>

SECTION 14. ORGANIZATION.

(b) The Board of Directors of the corporation shall be entitled
to make such rules or regulations for the conduct of meetings of stockholders as
it shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, the chairman of the meeting shall
have the right and authority to prescribe such rules, regulations and procedures
and to do all such acts as, in the judgment of such chairman, are necessary,
appropriate or convenient for the proper conduct of the meeting, including,
without limitation, establishing an agenda or order of business for the meeting,
rules and procedures for maintaining order at the meeting and the safety of
those present, limitations on participation in such meeting to stockholders of
record of the corporation and their duly authorized and constituted proxies and
such other persons as the chairman shall permit, restrictions on entry to the
meeting after the time fixed for the commencement thereof, limitations on the
time allotted to questions or comments by participants and regulation of the
opening and closing of the polls for balloting on matters which are to be voted
on by ballot. Unless and to the extent determined by the Board of Directors or
the chairman of the meeting, meetings of stockholders shall not be required to
be held in accordance with rules of parliamentary procedure.

ARTICLE IV

DIRECTORS

SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of
directors of the corporation shall be fixed in accordance with the Certificate
of Incorporation. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If for any cause, the directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose in
the manner provided in these Bylaws.

SECTION 17. CLASSES OF DIRECTORS. Subject to the rights of the holders
of any series of Preferred Stock to elect additional directors under specified
circumstances, following the closing of the Initial Public Offering, the
directors shall be divided into three classes designated as Class I, Class II
and Class III, respectively. Directors shall be assigned to each class in
accordance with a resolution or resolutions adopted by the Board of Directors.
At the first annual meeting of stockholders following the closing of the Initial
Public Offering, the term of office of the Class I directors shall expire and
Class I directors shall be elected for a full term of three years. At the
second annual meeting of stockholders following the Closing of the Initial

<PAGE>

Public Offering, the term of office of the Class II directors shall expire and
Class II directors shall be elected for a full term of three years. At the
third annual meeting of stockholders following the Closing of the Initial Public
Offering, the term of office of the Class III directors shall expire and
Class III directors shall be elected for a full term of three years. At each
succeeding annual meeting of stockholders, directors shall be elected for a full
term of three years to succeed the directors of the class whose terms expire at
such annual meeting.

Notwithstanding the foregoing provisions of this Article, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.

SECTION 20. REMOVAL. Subject to the rights of the holders of any series
of Preferred Stock, the Board of Directors or any individual director may be
removed from office at any time (i) with cause by the affirmative vote of the
holders of a majority of the voting power of all the then-outstanding shares of
voting stock of the corporation entitled to vote at an election of directors
(the "Voting Stock") or (ii) without cause by the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of all the then-outstanding shares of the Voting Stock.

SECTION 21. MEETINGS.

(a) ANNUAL MEETINGS. The annual meeting of the Board of
Directors shall be held immediately before or after the annual meeting of
stockholders and at the place where such

<PAGE>

meeting is held. No notice of an annual meeting of the Board of Directors shall
be necessary and such meeting shall be held for the purpose of electing officers
and transacting such other business as may lawfully come before it.

(e) NOTICE OF MEETINGS. Notice of the time and place of all
special meetings of the Board of Directors shall be orally or in writing, by
telephone, including a voice messaging system or other system or technology
designed to record and communicate messages, facsimile, telegraph or telex, or
by electronic mail or other electronic means, during normal business hours, at
least twenty-four (24) hours before the date and time of the meeting, or sent in
writing to each director by first class mail, postage prepaid, at least three
(3) days before the date of the meeting. Notice of any meeting may be waived in
writing at any time before or after the meeting and will be waived by any
director by attendance thereat, except when the director attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.

SECTION 22. QUORUM AND VOTING.

<PAGE>

accordance with the Certificate of Incorporation; PROVIDED, HOWEVER, at any
meeting whether a quorum be present or otherwise, a majority of the directors
present may adjourn from time to time until the time fixed for the next regular
meeting of the Board of Directors, without notice other than by announcement at
the meeting.

SECTION 25. COMMITTEES.

<PAGE>

ARTICLE V

OFFICERS

SECTION 27. OFFICERS DESIGNATED. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, the Chief

10.

<PAGE>

Executive Officer, the President, one or more Vice Presidents, the Secretary,
the Chief Financial Officer, the Treasurer, the Controller, all of whom shall be
elected at the annual organizational meeting of the Board of Directors. The
Board of Directors may also appoint one or more Assistant Secretaries, Assistant
Treasurers, Assistant Controllers and such other officers and agents with such
powers and duties as it shall deem necessary. The Board of Directors may assign
such additional titles to one or more of the officers as it shall deem
appropriate. Any one person may hold any number of offices of the corporation
at any one time unless specifically prohibited therefrom by law. The salaries
and other compensation of the officers of the corporation shall be fixed by or
in the manner designated by the Board of Directors.

SECTION 28. TENURE AND DUTIES OF OFFICERS.

(a) GENERAL. All officers shall hold office at the pleasure of
the Board of Directors and until their successors shall have been duly elected
and qualified, unless sooner removed. Any officer elected or appointed by the
Board of Directors may be removed at any time by the Board of Directors. If the
office of any officer becomes vacant for any reason, the vacancy may be filled
by the Board of Directors.

11.

<PAGE>

duties and have such other powers as the Board of Directors shall designate from
time to time. The President may direct any Assistant Secretary to assume and
perform the duties of the Secretary in the absence or disability of the
Secretary, and each Assistant Secretary shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time.

(f) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial
Officer shall keep or cause to be kept the books of account of the corporation
in a thorough and proper manner and shall render statements of the financial
affairs of the corporation in such form and as often as required by the Board of
Directors or the President. The Chief Financial Officer, subject to the order
of the Board of Directors, shall have the custody of all funds and securities of
the corporation. The Chief Financial Officer shall perform other duties
commonly incident to his office and shall also perform such other duties and
have such other powers as the Board of Directors or the President shall
designate from time to time. The President may direct the Treasurer or any
Assistant Treasurer, or the Controller or any Assistant Controller to assume and
perform the duties of the Chief Financial Officer in the absence or disability
of the Chief Financial Officer, and each Treasurer and Assistant Treasurer and
each Controller and Assistant Controller shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time.

SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officer
or agent, notwithstanding any provision hereof.

ARTICLE VI

EXECUTION OF CORPORATE INSTRUMENTS AND
VOTING OF SECURITIES OWNED BY THE CORPORATION

12.

<PAGE>

or to sign on behalf of the corporation the corporate name without limitation,
or to enter into contracts on behalf of the corporation, except where otherwise
provided by law or these Bylaws, and such execution or signature shall be
binding upon the corporation.

ARTICLE VII

SHARES OF STOCK

13.

<PAGE>

the powers, designations, preferences and relative, participating, optional, or
other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights.
Within a reasonable time after the issuance or transfer of uncertificated stock,
the corporation shall send to the registered owner thereof a written notice
containing the information required to be set forth or stated on certificates
pursuant to this section or otherwise required by law or with respect to this
section a statement that the corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and relative
participating, optional or oher special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights. Except as otherwise expressly provided by law, the rights and
obligations of the holders of certificates representing stock of the same class
and series shall be identical.

SECTION 36. TRANSFERS.

SECTION 37. FIXING RECORD DATES.

(a) In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors, and which record date
shall not be more than sixty (60) nor less than ten (10) days before the date of
such meeting. If no record date is fixed by the Board of Directors, the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the day next preceding the
day on which notice is given, or if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held. A determination
of stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; PROVIDED, HOWEVER,
that the Board of Directors may fix a new record date for the adjourned meeting.

14.

<PAGE>

(b) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors, and which record date shall
not be more than 60 days prior to such action. If no record date has been fixed
by the Board of Directors, the record date for determining stockholders for any
such purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.

ARTICLE VIII

OTHER SECURITIES OF THE CORPORATION

SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered in Section 34), may be signed by the Chairman of the Board of
Directors, the President or any Vice President, or such other person as may be
authorized by the Board of Directors, and the corporate seal impressed thereon
or a facsimile of such seal imprinted thereon and attested by the signature of
the Secretary or an Assistant Secretary, or the Chief Financial Officer or
Treasurer or an Assistant Treasurer; PROVIDED, HOWEVER, that where any such
bond, debenture or other corporate security shall be authenticated by the manual
signature, or where permissible facsimile signature, of a trustee under an
indenture pursuant to which such bond, debenture or other corporate security
shall be issued, the signatures of the persons signing and attesting the
corporate seal on such bond, debenture or other corporate security may be the
imprinted facsimile of the signatures of such persons. Interest coupons
appertaining to any such bond, debenture or other corporate security,
authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an
Assistant Treasurer of the corporation or such other person as may be authorized
by the Board of Directors, or bear imprinted thereon the facsimile signature of
such person. In case any officer who shall have signed or attested any bond,
debenture or other corporate security, or whose facsimile signature shall appear
thereon or on any such interest coupon, shall have ceased to be such officer
before the bond, debenture or other corporate security so signed or attested
shall have been delivered, such bond, debenture or other corporate security
nevertheless may be adopted by the corporation and issued and delivered as
though the person who signed the same or whose facsimile signature shall have
been used thereon had not ceased to be such officer of the corporation.

15.

<PAGE>

ARTICLE IX

DIVIDENDS

ARTICLE X

FISCAL YEAR

SECTION 42. FISCAL YEAR. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.

ARTICLE XI

INDEMNIFICATION

SECTION 43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OFFICERS,
EMPLOYEES AND OTHER AGENTS.

(a) DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall
indemnify its directors and executive officers (for the purposes of this
Article XI, "executive officers" shall have the meaning defined in Rule 3b-7
promulgated under the 1934 Act) to the fullest extent not prohibited by the
Delaware General Corporation Law; PROVIDED, HOWEVER, that the corporation may
modify the extent of such indemnification by individual contracts with its
directors and executive officers; and, provided, further, that the
corporation shall not be required to indemnify any director or executive
officer in connection with any proceeding (or part thereof) initiated by such
person unless (i) such indemnification is expressly required to be made by
law, (ii) the proceeding was authorized by the Board of Directors of the
corporation, (iii) such indemnification is provided by the corporation, in
its sole discretion, pursuant to the powers vested in the corporation under
the Delaware General Corporation Law or (iv) such indemnification is required
to be made under subsection (d).

(b) OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The
corporation shall have power to indemnify its other officers, employees and
other agents as set forth in the Delaware General Corporation Law.

16.

<PAGE>

is or was a director or executive officer of the corporation, or is or was
serving at the request of the corporation as a director or executive officer
of another corporation, partnership, joint venture, trust or other
enterprise, prior to the final disposition of the proceeding, promptly
following request therefor, all expenses incurred by any director or
executive officer in connection with such proceeding upon receipt of an
undertaking by or on behalf of such person to repay said amounts if it should
be determined ultimately that such person is not entitled to be indemnified
under this Bylaw or otherwise.

Notwithstanding the foregoing, unless otherwise determined pursuant
to paragraph (e) of this Bylaw, no advance shall be made by the corporation
to an executive officer of the corporation (except by reason of the fact that
such executive officer is or was a director of the corporation in which event
this paragraph shall not apply) in any action, suit or proceeding, whether
civil, criminal, administrative or investigative, if a determination is
reasonably and promptly made (i) by the Board of Directors by a majority vote
of a quorum consisting of directors who were not parties to the proceeding,
or (ii) if such quorum is not obtainable, or, even if obtainable, a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, that the facts known to the decision-making party at the time such
determination is made demonstrate clearly and convincingly that such person
acted in bad faith or in a manner that such person did not believe to be in
or not opposed to the best interests of the corporation.

(d) ENFORCEMENT. Without the necessity of entering into an
express contract, all rights to indemnification and advances to directors and
executive officers under this Bylaw shall be deemed to be contractual rights
and be effective to the same extent and as if provided for in a contract
between the corporation and the director or executive officer. Any right to
indemnification or advances granted by this Bylaw to a director or executive
officer shall be enforceable by or on behalf of the person holding such right
in any court of competent jurisdiction if (i) the claim for indemnification
or advances is denied, in whole or in part, or (ii) no disposition of such
claim is made within ninety (90) days of request therefor. The claimant in
such enforcement action, if successful in whole or in part, shall be entitled
to be paid also the expense of prosecuting his claim. In connection with any
claim for indemnification, the corporation shall be entitled to raise as a
defense to any such action that the claimant has not met the standards of
conduct that make it permissible under the Delaware General Corporation Law
for the corporation to indemnify the claimant for the amount claimed. In
connection with any claim by an executive officer of the corporation (except
in any action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such executive officer is or was a
director of the corporation) for advances, the corporation shall be entitled
to raise a defense as to any such action clear and convincing evidence that
such person acted in bad faith or in a manner that such person did not
believe to be in or not opposed to the best interests of the corporation, or
with respect to any criminal action or proceeding that such person acted
without reasonable cause to believe that his conduct was lawful. Neither the
failure of the corporation (including its Board of Directors, independent
legal counsel or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper
inthe circumstances because he has met the applicable standard of conduct set
forth in the Delaware General Corporation Law, nor an actual determination by
the corporation (including its Board of Directors, independent legal counsel
or its stockholders) that the claimant has not met such applicable standard
of conduct, shall be a defense to the action or create a presumption that
claimant has not met the applicable standard of conduct. In any suit brought
by a director or executive officer to enforce a right to indemnification or
to an

17.

<PAGE>

advancement of expenses hereunder, the burden of proving that the director or
executive officer is not entitled to be indemnified, or to such advancement
of expenses, under this Article XI or otherwise shall be on the corporation.

(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the
following definitions shall apply:

(i) The term "proceeding" shall be broadly construed and
shall include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of testimony in,
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative.

18.

<PAGE>

had power and authority to indemnify its directors, officers, and employees or
agents, so that any person who is or was a director, officer, employee or agent
of such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall stand
in the same position under the provisions of this Bylaw with respect to the
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.

ARTICLE XII

NOTICES

SECTION 44. NOTICES.

(b) NOTICE TO DIRECTORS. Any notice required to be given to any
director may be given by the method stated in subsection (a), or by facsimile,
telex or telegram, except that such notice other than one which is delivered
personally shall be sent to such address as such director shall have filed in
writing with the Secretary, or, in the absence of such filing, to the last known
post office address of such director.

19.

<PAGE>

(h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever
notice is required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings, or (ii) all, and at least
two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve month period, have been mailed addressed to such
person at his address as shown on the records of the corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been duly
given. If any such person shall deliver to the corporation a written notice
setting forth his then current address, the requirement that notice be given to
such person shall be reinstated. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate need not
state that notice was not given to persons to whom notice was not required to be
given pursuant to this paragraph.

20.

<PAGE>

ARTICLE XIII

AMENDMENTS

SECTION 45. AMENDMENTS. Subject to paragraph (h) of Section 43 of the
Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the
voting power of all of the then-outstanding shares of the Voting Stock. The
Board of Directors shall also have the power to adopt, amend, or repeal Bylaws.

ARTICLE XIV

LOANS TO OFFICERS

SECTION 46. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance
may be with or without interest and may be unsecured, or secured in such manner
as the Board of Directors shall approve, including, without limitation, a pledge
of shares of stock of the corporation. Nothing in these Bylaws shall be deemed
to deny, limit or restrict the powers of guaranty or warranty of the corporation
at common law or under any statute.

21.

<PAGE>

SCIENTIFIC LEARNING PRINCIPLES CORPORATION

REGISTRATION RIGHTS AGREEMENT

OCTOBER 1, 1996

<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
1. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 1

2. Registration; Restrictions On Transfer. . . . . . . . . . . . . . . . 2
2.1 Restrictions on Transfer. . . . . . . . . . . . . . . . . . . 2
2.2 Demand Registration . . . . . . . . . . . . . . . . . . . . . 3
2.3 Piggyback Registrations . . . . . . . . . . . . . . . . . . . 4
2.3.1 Underwriting . . . . . . . . . . . . . . . . . . . . . 4
2.3.2 Right to Terminate Registration. . . . . . . . . . . . 5
2.4 Expenses of Registration. . . . . . . . . . . . . . . . . . . 5
2.5 Obligations of the Company. . . . . . . . . . . . . . . . . . 5
2.6 Termination of Registration Rights. . . . . . . . . . . . . . 6
2.7 Delay of Registration; Furnishing Information . . . . . . . . 6
2.8 Indemnification . . . . . . . . . . . . . . . . . . . . . . . 7
2.9 Assignment of Registration Rights . . . . . . . . . . . . . . 9
2.10 Amendment of Registration Rights. . . . . . . . . . . . . . . 9
2.11 Limitation on Subsequent Registration Rights. . . . . . . . . 9
2.12 "Market Stand-Off" Agreement. . . . . . . . . . . . . . . . . 9
2.13 Rule 144 Reporting. . . . . . . . . . . . . . . . . . . . . .10

3. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
3.1 Governing Law . . . . . . . . . . . . . . . . . . . . . . . .10
3.2 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . .10
3.3 Successors and Assigns. . . . . . . . . . . . . . . . . . . .11
3.4 Severability. . . . . . . . . . . . . . . . . . . . . . . . .11
3.5 Amendment and Waiver. . . . . . . . . . . . . . . . . . . . .11
3.6 Delays or Omissions . . . . . . . . . . . . . . . . . . . . .11
3.7 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . .11
3.8 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . .12
3.9 Titles and Subtitles. . . . . . . . . . . . . . . . . . . . .12
3.10 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . .12
</TABLE>

i.
<PAGE>

SCIENTIFIC LEARNING PRINCIPLES CORPORATION

REGISTRATION RIGHTS AGREEMENT

THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into as of
the 1st day of October, 1996, by and among SCIENTIFIC LEARNING PRINCIPLES
CORPORATION, a California corporation (the "Company") and WARBURG, PINCUS
VENTURES, L.P., a Delaware limited partnership (the "Investor").

RECITALS

WHEREAS, the Company proposes to sell and issue up to Four Million Four
Hundred Forty-Four Thousand Four Hundred Forty-Four (4,444,444) shares of its
Series B Preferred Stock ("Series B Preferred") and a warrant (the "Warrant") to
purchase up to Two Million Eight Hundred Fifty Seven Thousand One Hundred
Forty-Three (2,857,143) shares of Series C Preferred Stock ("Series C
Preferred") pursuant to the Securities Purchase Agreement dated September 24,
1996, by and between the Company and the Investor (the "Purchase Agreement");
and

WHEREAS, as a condition of entering into the Purchase Agreement, the
Investor has requested that the Company extend to it registration rights as set
forth below.

NOW, THEREFORE, in consideration of the mutual promises, representations,
warranties, covenants and conditions set forth in this Agreement and in the
Purchase Agreement, the parties mutually agree as follows:

1. GENERAL

1.1 DEFINITIONS. As used in this Agreement the following terms shall have
the following respective meanings:

"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.

"HOLDER" means any person owning of record Registrable Securities that have
not been sold to the public or any assignee of record of such Registrable
Securities in accordance with Section 2.9 hereof.

"INITIAL OFFERING" means the Company's first firm commitment underwritten
public offering of its Common Stock registered under the Securities Act.

"REGISTER," "registered," and "registration" refer to a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act, and the declaration or ordering of effectiveness of such
registration statement or document.

"REGISTRABLE SECURITIES" means (i) Common Stock of the Company issued or
issuable upon conversion of the Shares; and (ii) any Common Stock of the Company
issued as (or

1.
<PAGE>

issuable upon the conversion or exercise of any warrant, right or other security
which is issued as) a dividend or other distribution with respect to, or in
exchange for or in replacement of, such above-described securities.
Notwithstanding the foregoing, Registrable Securities shall not include any
securities sold by a person to the public either pursuant to a registration
statement or Rule 144 or sold in a private transaction in which the
transferror's rights under Article II of this Agreement are not assigned.

"REGISTRABLE SECURITIES THEN OUTSTANDING" shall be the number of shares
determined by calculating the total number of shares of the Company's Common
Stock that are Registrable Securities and either (1) are then issued and
outstanding or (2) are issuable pursuant to then exercisable or convertible
securities.

"REGISTRATION EXPENSES" shall mean all expenses incurred by the Company in
complying with Sections 2.2 and 2.3 hereof, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, reasonable fees and disbursements not to exceed Fifteen
Thousand Dollars ($15,000) of a single special counsel for the Holders, blue sky
fees and expenses and the expense of any special audits incident to or required
by any such registration (but excluding the compensation of regular employees of
the Company which shall be paid in any event by the Company).

"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.

"SELLING EXPENSES" shall mean all underwriting discounts and selling
commissions applicable to the sale.

"SHARES" shall mean the Company's Series B Preferred issued pursuant to the
Purchase Agreement and any of the Company's Series C Preferred issued upon
exercise of the Warrant.

"SEC" or "COMMISSION" means the Securities and Exchange Commission.

2. REGISTRATION; RESTRICTIONS ON TRANSFER

2.1 RESTRICTIONS ON TRANSFER.

(a) Each Holder agrees not to make any disposition of all or any
portion of the Shares or Registrable Securities unless and until:

(i) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such registration statement; or

(ii) (A) The transferee has agreed in writing to be bound by
this Section 2.1, (B) such Holder shall have notified the Company of the
proposed disposition, and (C) if reasonably requested by the Company, such
Holder shall have furnished the Company with an opinion of counsel, reasonably
satisfactory to the Company, that such disposition will not require registration
of such shares under the Securities Act. It is agreed that the Company will not
require opinions of counsel for transactions made pursuant to Rule 144 except in
unusual circumstances.

2.
<PAGE>

2.2 DEMAND REGISTRATION.

2.2.1 Subject to the conditions of this Section 2.2, if the Company
shall receive a written request from the Holders of more than fifty percent
(50%) of the Registrable Securities then outstanding (the "Initiating Holders")
that the Company file a registration statement under the Securities Act covering
the registration of Registrable Securities having an aggregate offering price to
the public in excess of Five Million Dollars ($5,000,000), then the Company
shall, within thirty (30) days of the receipt thereof, give written notice of
such request to all Holders, and subject to the limitations of this Section 2.2,
effect, as soon as practicable, the registration under the Securities Act of all
Registrable Securities that the Holders request to be registered.

2.2.2 If the Initiating Holders intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Company as a part of their request made pursuant to this Section 2.2
and the Company shall include such information in the written notice referred to
in Section 2.2.1. In such event, the right of any Holder to include its
Registrable Securities in such registration shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall enter into an underwriting agreement in customary form
with the underwriter or underwriters selected for such underwriting by a
majority in interest of the Initiating Holders (which underwriter or
underwriters shall be reasonably acceptable to the Company). Notwithstanding
any other provision of this Section 2.2, if the underwriter advises the Company
that marketing factors require a limitation of the number of securities to be
underwritten (including Registrable Securities) then the Company shall so advise
all Holders of Registrable Securities which would otherwise be underwritten
pursuant hereto, and the number of shares that may be included in the
underwriting shall be allocated to the Holders of such Registrable Securities on
a pro rata basis based on the number of Registrable Securities held by all such
Holders (including the Initiating Holders). Any Registrable Securities excluded
or withdrawn from such underwriting shall be withdrawn from the registration.

2.2.3 The Company shall not be required to effect a registration
pursuant to this Section 2.2:

(i) prior to the first anniversary of the Company's Initial
Offering; or

(ii) after the Company has effected two (2) registrations
pursuant to this Section 2.2, and such registrations have been declared or
ordered effective; or

(iii) if the Company shall furnish to Holders requesting a
registration statement pursuant to this Section 2.2, a certificate signed by the
Chairman of the Board stating that in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to the Company and
its shareholders for such registration statement to be effected at such time, in
which event the Company shall have the right to defer such filing for a period
of not more than ninety (90) days after receipt of the request of the Initiating
Holders; provided that such right to delay a request shall be exercised by the
Company no more than once in any one-year period.

3.
<PAGE>

2.3 PIGGYBACK REGISTRATIONS. The Company shall notify all Holders of
Registrable Securities in writing at least thirty (30) days prior to the filing
of any registration statement under the Securities Act for purposes of a public
offering of equity securities of the Company (including, but not limited to,
registration statements relating to secondary offerings of securities of the
Company, but excluding registration statements relating to employee benefit
plans or with respect to corporate reorganizations or other transactions under
Rule 145 of the Securities Act) and will afford each such Holder an opportunity
to include in such registration statement all or part of such Registrable
Securities held by such Holder. Each Holder desiring to include in any such
registration statement all or any part of the Registrable Securities held by it
shall, within fifteen (15) days after the above-described notice from the
Company, so notify the Company in writing. Such notice shall state the intended
method of disposition of the Registrable Securities by such Holder. If a Holder
decides not to include all of its Registrable Securities in any registration
statement thereafter filed by the Company, such Holder shall nevertheless
continue to have the right to include any Registrable Securities in any
subsequent such registration statement or registration statements as may be
filed by the Company with respect to offerings of its securities, all upon the
terms and conditions set forth herein.

2.3.1 UNDERWRITING. If the registration statement under which the
Company gives notice under this Section 2.3 is for an underwritten offering, the
Company shall so advise the Holders of Registrable Securities. In such event,
the right of any such Holder to be included in a registration pursuant to this
Section 2.3 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their Registrable Securities through such underwriting shall enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Company. Notwithstanding any other
provision of the Agreement, if the underwriter determines in good faith that
marketing factors require a limitation of the number of shares to be
underwritten, the number of shares that may be included in the underwriting
shall be allocated, first, to the Company; second, to the Holders on a pro rata
basis based on the total number of Registrable Securities held by the Holders;
and third, to any shareholder of the Company (other than a Holder) on a pro rata
basis. No such reduction shall reduce the securities being offered by the
Company for its own account to be included in the registration and underwriting,
and in no event shall the amount of securities of the selling Holders included
in the registration be reduced below twenty-five percent (25%) of the total
amount of securities included in such registration, unless such offering is the
Initial Offering and such registration does not include shares of any other
selling shareholders, in which event any or all of the Registrable Securities of
the Holders may be excluded in accordance with the immediately preceding
sentence. In no event will shares of any other selling shareholder be included
in such registration which would reduce the number of shares which may be
included by Holders without the written consent of Holders of not less than a
majority of the Registrable Securities proposed to be sold in the offering.

2.3.2 RIGHT TO TERMINATE REGISTRATION. The Company shall have the
right to terminate or withdraw any registration initiated or withdraw any
registration initiated by it under this Section 2.3 prior to the effectiveness
of such registration whether or not any Holder has elected to include securities
in such registration. The Registration Expenses of such withdrawn registration
shall be borne by the Company in accordance with Section 2.4 hereof.

4.
<PAGE>

2.4 EXPENSES OF REGISTRATION. Except as specifically provided herein, all
Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to Section 2.2 or any registration under
Section 2.3 herein shall be borne by the Company. All Selling Expenses incurred
in connection with any registrations hereunder, shall be borne by the holders of
the securities so registered pro rata on the basis of the number of shares so
registered. The Company shall not, however, be required to pay for expenses of
any registration proceeding begun pursuant to Section 2.2, the request of which
has been subsequently withdrawn by the Initiating Holders unless (a) the
withdrawal is based upon material adverse information concerning the Company of
which the Initiating Holders were not aware at the time of such request or (b)
the Holders of a majority of Registrable Securities agree to forfeit their right
to one requested registration pursuant to Section 2.2, as applicable, in which
event such right shall be forfeited by all Holders. If the Holders are required
to pay the Registration Expenses, such expenses shall be borne by the holders of
securities (including Registrable Securities) requesting such registration in
proportion to the number of shares for which registration was requested. If the
Company is required to pay the Registration Expenses of a withdrawn offering
pursuant to clause (a) above, then the Holders shall not forfeit their rights
pursuant to Section 2.2 to a demand registration.

2.5 OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as expeditiously
as reasonably possible:

2.5.1 Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use all reasonable efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for up to ninety (90) days or, if earlier,
until the Holder or Holders have completed the distribution related thereto.

2.5.2 Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement.

2.5.3 Furnish to the Holders such number of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Securities owned by them.

2.5.4 Use all reasonable efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions.

2.5.5 In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter(s) of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.

5.
<PAGE>

2.5.6 Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.

2.5.7 Furnish, at the request of a majority of the Holders
participating in the registration, on the date that such Registrable Securities
are delivered to the underwriters for sale, if such securities are being sold
through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated as of such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten public
offering and reasonably satisfactory to a majority in interest of the Holders
participating in registration, addressed to the underwriters, if any, and to
such Holders and (ii) a letter dated as of such date, from the independent
certified public accountants of the Company, in form and substance as is
customarily given by independent certified public accountants to underwriters in
an underwritten public offering and reasonably satisfactory to a majority in
interest of the Holders requesting registration, addressed to the underwriters,
if any, and if permitted by applicable accounting standards, to the Holders
requesting registration of Registrable Securities.

2.6 TERMINATION OF REGISTRATION RIGHTS. A Holder's registration rights
shall expire if (i) the Company has completed its Initial Offering and is
subject to the provisions of the Exchange Act, (ii) such Holder (together with
its affiliates, partners and former partners) holds less than 1% of the
Company's outstanding Common Stock (treating all shares of convertible Preferred
Stock on an as converted basis) and (iii) all Registrable Securities held by and
issuance to such Holder may be sold under Rule 144 during any ninety (90) day
period.

2.7 DELAY OF REGISTRATION; FURNISHING INFORMATION.

2.7.1 No Holder shall have any right to obtain or seek an injunction
restraining or otherwise delaying any such registration as the result of any
controversy that might arise with respect to the interpretation or
implementation of this Article II.

2.7.2 It shall be a condition precedent to the obligations of the
Company to take any action pursuant to Section 2.2 or 2.3 that the selling
Holders shall furnish to the Company such information regarding themselves, the
Registrable Securities held by them and the intended method of disposition of
such securities as shall be required to effect the registration of their
Registrable Securities.

2.8 INDEMNIFICATION. In the event any Registrable Securities are included
in a registration statement under Sections 2.2 or 2.3:

2.8.1 To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, the partners, officers, directors and legal counsel
of each Holder, any underwriter (as defined in the Securities Act) for such
Holder and each person, if any, who

6.
<PAGE>

controls such Holder or underwriter within the meaning of the Securities Act or
the Exchange Act, against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Securities Act, the Exchange
Act or other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation") by the Company: (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
the Exchange Act or any state securities law in connection with the offering
covered by such registration statement; and the Company will reimburse each such
Holder, partner, officer or director, underwriter or controlling person for any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
PROVIDED, HOWEVER, that the indemnity agreement contained in this Section 2.8.1
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Company, which consent shall not be unreasonably withheld, nor shall the Company
be liable in any such case for any such loss, claim, damage, liability or action
to the extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by such Holder, partner, officer,
director, underwriter or controlling person of such Holder.

2.8.2 To the extent permitted by law, each Holder will, if
Registrable Securities held by such Holder are included in the securities as to
which such registration qualifications or compliance is being effected,
indemnify and hold harmless the Company, each of its directors, its officers,
and legal counsel and each person, if any, who controls the Company within the
meaning of the Securities Act, any underwriter and any other Holder selling
securities under such registration statement or any of such other Holder's
partners, directors or officers or any person who controls such Holder, against
any losses, claims, damages or liabilities (joint or several) to which the
Company or any such director, officer, controlling person, underwriter or other
such Holder, or partner, director, officer or controlling person of such other
Holder may become subject under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder under an instrument duly executed by such Holder and stated to be
specifically for use in connection with such registration; and each such Holder
will reimburse any legal or other expenses reasonably incurred by the Company or
any such director, officer, controlling person, underwriter or other Holder, or
partner, officer, director or controlling person of such other Holder in
connection with investigating or defending any such loss, claim, damage,
liability or action if it is finally judicially determined that there was such a
Violation; PROVIDED, HOWEVER, that the indemnity agreement contained in this
Section 2.8.2 shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Holder, which consent shall not be unreasonably withheld;
PROVIDED

7.
<PAGE>

FURTHER, that in no event shall any indemnity under this Section 2.8 exceed the
proceeds from the offering received by such Holder.

2.8.3 Promptly after receipt by an indemnified party under this
Section 2.8 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 2.8, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; PROVIDED, HOWEVER, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if materially prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 2.8, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section 2.8.

2.8.4 If the indemnification provided for in this Section 2.8 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any losses, claims, damages or liabilities referred to herein,
the indemnifying party, in lieu of indemnifying such indemnified party
thereunder, shall to the extent permitted by applicable law contribute to the
amount paid or payable by such indemnified party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the Violation(s) that resulted in such
loss, claim, damage or liability, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by a court of law by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission; provided, that in no event shall any contribution by a
Holder hereunder exceed the proceeds from the offering received by such Holder.

2.8.5 The obligations of the Company and Holders under this Section
2.8 shall survive completion of any offering of Registrable Securities in a
registration statement. No Indemnifying Party, in the defense of any such claim
or litigation, shall, except with the consent of each Indemnified Party, consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. In the event any offering of Registrable Securities is
underwritten, and the underwriting agreement provides for indemnification and/or
contribution by the Company and the Holders offering securities thereunder, the
indemnification and/or contribution obligations of the Company and the Holders

8.
<PAGE>

hereunder shall in no event exceed the obligations of the parties set forth in
such underwriting agreement.

2.9 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to this Article II may be
assigned by a Holder to a transferee or assignee of Registrable Securities which
(i) is a subsidiary, parent, general partner, limited partner or retired partner
of a Holder, (ii) is a Holder's family member or trust for the benefit of an
individual Holder, or (iii) acquires at least Five Hundred Thousand (500,000)
shares of Registrable Securities (as adjusted for stock splits and
combinations); PROVIDED, HOWEVER, (A) the transferor shall, within ten (10) days
after such transfer, furnish to the Company written notice of the name and
address of such transferee or assignee and the securities with respect to which
such registration rights are being assigned and (B) such transferee shall agree
to be subject to all restrictions set forth in this Agreement.

2.10 AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Article II
may be amended or terminated and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Holders of
at least a majority of the Registrable Securities. Any amendment, termination
or waiver effected in accordance with this Section 2.10 shall be binding upon
each Holder and the Company. By acceptance of any benefits under this Article
II, Holders of Registrable Securities hereby agree to be bound by the provisions
hereunder. Each party hereto acknowledges that by the operation of this Section
the holders of a majority of the outstanding Registrable Securities may have the
right and power to diminish or eliminate all rights of such party under this
Agreement.

2.11 LIMITATION ON SUBSEQUENT REGISTRATION RIGHTS. After the date of this
Agreement, the Company shall not, without the prior written consent of the
Holders of a majority of the Registrable Securities, enter into any agreement
with any holder or prospective holder of any securities of the Company that
would grant such holder registration rights senior to those granted to the
Holders hereunder.

2.12 "MARKET STAND-OFF" AGREEMENT. If requested by the Company as the
representative of the underwriters of Common Stock (or other securities) of the
Company, each Holder shall not sell or otherwise transfer or dispose of any
Shares or Common Stock (or other securities) of the Company held by each such
Holder (other than those included in the registration) for a period specified by
the representative of the underwriters not to exceed one hundred eighty (180)
days following the effective date of a registration statement of the Company
filed under the Securities Act, provided that:

(i) such agreement shall apply only to the Company's Initial
Offering; and

(ii) all officers and directors of the Company and holders of
at least one percent (1%) of the Company's voting securities enter into similar
agreements.

9.
<PAGE>

The Company may impose stop-transfer instructions with respect to the
shares of Common Stock (or other securities) subject to the foregoing
restriction until the end of said one hundred eighty (180) day period.

2.13 RULE 144 REPORTING. With a view to making available to the
Holders the benefits of certain rules and regulations of the SEC which may
permit the sale of the Registrable Securities to the public without
registration, the Company agrees to use its best efforts to:

(a) Make and keep public information available, as those terms are
understood and defined in SEC Rule 144 or any similar or analogous rule
promulgated under the Securities Act, at all times after the effective date of
the first registration filed by the Company for an offering of its securities to
the general public;

(b) File with the SEC, in a timely manner, all reports and other
documents required of the Company under the Exchange Act;

(c) So long as a Holder owns any Registrable Securities, furnish to
such Holder forthwith upon request: a written statement by the Company as to
its compliance with the reporting requirements of said Rule 144 of the
Securities Act, and of the Exchange Act (at any time after it has become subject
to such reporting requirements); a copy of the most recent annual or quarterly
report of the Company; and such other reports and documents as a Holder may
reasonably request in availing itself of any rule or regulation of the SEC
allowing it to sell any such securities without registration.

3. MISCELLANEOUS

3.1 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of California without giving effect to principles of
conflicts of laws thereof.

3.2 SURVIVAL. The representations, warranties, covenants, and agreements
made herein shall survive any investigation made by any Holder and the closing
of the transactions contemplated hereby. All statements as to factual matters
contained in any certificate or other instrument delivered by or on behalf of
the Company pursuant hereto in connection with the transactions contemplated
hereby shall be deemed to be representations and warranties by the Company
hereunder solely as of the date of such certificate or instrument.

3.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of Registrable Securities from time to time;
PROVIDED, HOWEVER, that prior to the receipt by the Company of adequate written
notice of the transfer of any Registrable Securities specifying the full name
and address of the transferee, the Company may deem and treat the person listed
as the holder of such shares in its records as the absolute owner and holder of
such shares for all purposes, including the payment of dividends or any
redemption price.

10.
<PAGE>

3.4 SEVERABILITY. In case any provision of the Agreement shall be
invalid, illegal, or unenforceable, the validity, legality, and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.

3.5 AMENDMENT AND WAIVER.

3.5.1 Except as otherwise expressly provided, this Agreement may be
amended or modified only upon the written consent of the Company and the holders
of at a majority of the Registrable Securities.

3.5.2 Except as otherwise expressly provided, the obligations of the
Company and the rights of the Holders under this Agreement may be waived only
with the written consent of the holders of at least a majority of the
Registrable Securities.

3.5.3 Notwithstanding the foregoing, this Agreement may be amended
with only the written consent of the Company to include additional purchasers of
Shares as "Investors," "Holders" and parties hereto.

3.6 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power, or remedy accruing to any Holder, upon any breach,
default or noncompliance of the Company under this Agreement shall impair any
such right, power, or remedy, nor shall it be construed to be a waiver of any
such breach, default or noncompliance, or any acquiescence therein, or of any
similar breach, default or noncompliance thereafter occurring. It is further
agreed that any waiver, permit, consent, or approval of any kind or character on
any Holder's part of any breach, default or noncompliance under the Agreement or
any waiver on such Holder's part of any provisions or conditions of this
Agreement must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement, by law, or otherwise afforded to Holders, shall be cumulative and not
alternative.

3.7 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (i) upon personal delivery to the
party to be notified, (ii) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient; if not, then on the next business
day, (iii) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid, or (iv) one (1) business day after
deposit with a nationally recognized overnight courier, specifying next day
delivery, with written verification of receipt (where a "business day" is any
day other than a Saturday, Sunday or federal holiday). All communications shall
be sent to the party to be notified at the address as set forth on the signature
pages hereof or at such other address as such party may designate by ten (10)
days advance written notice to the other parties hereto.

3.8 ATTORNEYS' FEES. In the event that any dispute among the parties to
this Agreement should result in litigation, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
of enforcing any right of such prevailing party under or with respect to this
Agreement, including without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.

11.
<PAGE>

3.9 TITLES AND SUBTITLES. The titles of the sections and subsections of
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.

3.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.

[THIS SPACE INTENTIONALLY LEFT BLANK]

12.
<PAGE>

IN WITNESS WHEREOF, the parties hereto have executed this Registration
Rights Agreement as of the date set forth above.

COMPANY: PURCHASERS:

SCIENTIFIC LEARNING PRINCIPLES WARBURG, PINCUS VENTURES, L.P.
CORPORATION

By its General Partner, Warburg,
Pincus & Co.
By: /s/ Michael Merzenich
--------------------------
President

Address: One Kearny Street By: /s/ James Thomas
San Francisco, CA 94108 ------------------------------------
Fax: 415-296-1481 Name/Title: James Thomas, Partner
-----------------------------

Address: 466 Lexington Avenue
New York, NY 10077
Fax: 212-878-9361

REGISTRATION RIGHTS AGREEMENT

13.
<PAGE>

AMENDMENT NO. 1 TO REGISTRATION
RIGHTS AGREEMENT

THIS AMENDMENT NO. 1 TO REGISTRATION RIGHTS AGREEMENT (the "Amendment"),
dated as of November 14, 1996, is entered into by and among SCIENTIFIC LEARNING
PRINCIPLES CORPORATION, a California corporation (the "Company"), and the other
parties hereto, with respect to the Registration Rights Agreement, dated as of
October 1, 1996 (the "Rights Agreement"), by and between the Company and
Warburg, Pincus Ventures, L.P. (the "Investor").

RECITALS

WHEREAS, the Company proposes to sell and issue to GC&H Investments,
a California general partnership (the "Purchaser"), fifty-five thousand five
hundred fifty-six (55,556) shares of its Series B Preferred Stock (the "Series B
Preferred") pursuant to the Stock Purchase Agreement dated of even date
herewith, by and between the Company and the Purchaser (the "Stock Purchase
Agreement");

WHEREAS, the Company desires to grant to the Purchaser, with respect to the
Series B Preferred, the same registration rights as granted to the Investor as
set forth in the Rights Agreement;

WHEREAS, under Section 3.5.1 of the Rights Agreement, the Rights Agreement
may be amended or modified only upon the written consent of the Company and the
holders of at least a majority of the Registrable Securities, as defined in the
Rights Agreement;

WHEREAS, to obtain registration rights in its capacity as the holder of the
Series B Preferred, the Purchaser desires that the Rights Agreement be amended
to make the Purchaser a party thereto;

WHEREAS, in Section 6.10 of that certain Securities Purchase Agreement,
dated September 24, 1996, by and between the Company and the Investor (the
"Securities Purchase Agreement"), the Investor consented to the sale of shares
of the Series B Preferred to the Purchaser;

NOW, THEREFORE, in consideration of the mutual promises, representations,
warranties, covenants and conditions set forth in this Agreement, the Securities
Purchase Agreement and the Stock Purchase Agreement, the parties mutually agree
as follows:

1. DEFINITIONS. All capitalized terms used but not defined herein shall
have the meanings ascribed to them in the Rights Agreement.

2. AMENDMENT.

a. The first paragraph of the Rights Agreement on page 1 thereof is
hereby amended to read in its entirety as set forth below:

<PAGE>

"This REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into as of
the 1st day of October 1996, by and among SCIENTIFIC LEARNING PRINCIPLES
CORPORATION, a California corporation (the "Company"), and WARBURG, PINCUS
VENTURES, L.P., a Delaware limited partnership ("Warburg"). This Agreement is
amended as of the 14th day of November, 1996, to add GC&H INVESTMENTS,
a California general partnership ("GC&H"), as a party hereto. As used herein,
the term "Investors" shall mean Warburg and GC&H."

b. The definition of the word "Shares" as set forth in Section 1.1
of the Rights Agreement is hereby amended to read in its entirety as set forth
below:

"`SHARES' shall mean (i) the Company's Series B Preferred issued pursuant
to (A) the Purchase Agreement and (B) that certain Stock Purchase Agreement,
dated of even date herewith, by and between the Company and GC&H and (ii) any of
the Company's Series C Preferred issued upon exercise of the Warrant."

3. PURCHASER. Upon the effectiveness of this Amendment, as provided in
Section 4 hereof, the Purchaser agrees to be bound by all of the terms and
conditions of the Rights Agreement applicable to Investors and Holders.

4. EFFECTIVENESS. This Amendment shall become effective as of the date
first set forth above.

5. EFFECT OF AMENDMENT. Except as amended as set forth above, the Rights
Agreement shall continue in full force and effect.

6. COUNTERPARTS. This Amendment may be signed in one or more
counterparts, each of which shall be deemed an original and all of which, taken
together, shall be deemed one and the same document.

2
<PAGE>

IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 1
to Registration Rights Agreement as of the day and year first above written.

COMPANY: INVESTOR:

SCIENTIFIC LEARNING PRINCIPLES WARBURG, PINCUS VENTURES, L.P.
CORPORATION By its General Partner,
Warburg, Pincus & Co.

By: /s/ Sheryle Bolton By: /s/ James E. Thomas
------------------------------- ------------------------------------
Sheryle Bolton
Chief Executive Officer
Name/Title: James E. Thomas, Partner
---------------------------

Address: One Kearny Street Address: 466 Lexington Avenue
San Francisco, CA 94108 New York, NY 10077
Fax: 415-296-1481 Fax: 212-878-9361

PURCHASER:

GC&H INVESTMENTS,
a California general partnership

By: /s/ John Cardoza
--------------------------------
John Cardoza
Executive Partner

Address: One Maritime Plaza, 20th Floor
San Francisco, CA 94111-3580
Fax: 415-961-3699

<PAGE>

INDEMNITY AGREEMENT

This Agreement is made and entered into this ____ day of ___________, 1998
by and between SCIENTIFIC LEARNING CORPORATION, a Delaware corporation (the
"Corporation"), and ____________________ ("Agent").

RECITALS

WHEREAS, Agent performs a valuable service to the Corporation in her
capacity as a director of the Corporation;

WHEREAS, the stockholders of the Corporation have adopted bylaws (the
"Bylaws") providing for the indemnification of the directors, officers,
employees and other agents of the Corporation, including persons serving at the
request of the Corporation in such capacities with other corporations or
enterprises, as authorized by the Delaware Corporation Law, as amended (the
"Code");

WHEREAS, the Bylaws and the Code, by their non-exclusive nature, permit
contracts between the Corporation and its agents, officers, employees and other
agents with respect to indemnification of such persons; and

WHEREAS, in order to induce Agent to continue to serve as a director of the
Corporation, the Corporation has determined and agreed to enter into this
Agreement with Agent.

NOW, THEREFORE, in consideration of Agent's continued service as a director
after the date hereof, the parties hereto agree as follows:

AGREEMENT

1. SERVICES TO THE CORPORATION. Agent will serve, at the will of the
Corporation or under separate contract, if any such contract exists, as a
director of the Corporation or as a director, officer or other fiduciary of an
affiliate of the Corporation (including any employee benefit plan of the
Corporation) faithfully and to the best of his or her ability so long as he or
she is duly elected and qualified in accordance with the provisions of the
Bylaws or other applicable charter documents of the Corporation or such
affiliate; provided, however, that Agent may at any time and for any reason
resign from such position (subject to any contractual obligation that Agent may
have assumed apart from this Agreement) and that the Corporation or any
affiliate shall have no obligation under this Agreement to continue Agent in any
such position.

2. INDEMNITY OF AGENT. The Corporation hereby agrees to hold harmless
and indemnify Agent to the fullest extent authorized or permitted by the
provisions of the Bylaws, as the same may be amended from time to time (but,
only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than the Bylaws permitted prior to adoption of
such amendment or, in case the Bylaws become more restrictive as a result of
amendments to the Code, as the Bylaws were in effect prior to such amendment
to the Code).

1.
<PAGE>

3. ADDITIONAL INDEMNITY. In addition to and not in limitation of the
indemnification otherwise provided for herein, and subject only to the
exclusions set forth in Section 4 hereof, the Corporation hereby further agrees
to hold harmless and indemnify Agent:

(a) against any and all expenses (including attorneys' fees), witness
fees, damages, judgments, fines and amounts paid in settlement and any other
amounts that Agent becomes legally obligated to pay because of any claim or
claims made against or by her in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative (including an action by or in the right of the
Corporation) to which Agent is, was or at any time becomes a party, or is
threatened to be made a party, by reason of the fact that Agent is, was or at
any time becomes a director, officer, employee or other agent of Corporation, or
is or was serving or at any time serves at the request of the Corporation as a
director, officer, employee or other agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise; and

(b) otherwise to the fullest extent as may be provided to Agent by
the Corporation under the non-exclusivity provisions of the Code and Section 43
of the Bylaws.

4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to Section
3 hereof shall be paid by the Corporation:

(a) on account of any claim against Agent for an accounting of
profits made from the purchase or sale by Agent of securities of the Corporation
pursuant to the provisions of Section 16(b) of the Securities Exchange Act of
1934 and amendments thereto or similar provisions of any federal, state or local
statutory law;

(b) on account of Agent's conduct that was knowingly fraudulent or
deliberately dishonest or that constituted willful misconduct;

(c) on account of Agent's conduct that constituted a breach of
Agent's duty of loyalty to the Corporation or resulted in any personal profit or
advantage to which Agent was not legally entitled;

(d) for which payment is actually made to Agent under a valid and
collectible insurance policy or under a valid and enforceable indemnity clause,
bylaw or agreement, except in respect of any excess beyond payment under such
insurance, clause, bylaw or agreement;

(e) if indemnification is not lawful (and, in this respect, both the
Corporation and Agent have been advised that the Securities and Exchange
Commission believes that indemnification for liabilities arising under the
federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication); or

(f) in connection with any proceeding (or part thereof) initiated by
Agent, or any proceeding by Agent against the Corporation or its directors,
officers, employees or other agents, unless (i) such indemnification is
expressly required to be made by law, (ii) the proceeding was authorized by the
Board of Directors of the Corporation, (iii) such indemnification is provided by
the Corporation, in its sole discretion, pursuant to the powers

2.
<PAGE>

vested in the Corporation under the Code, or (iv) the proceeding is initiated
pursuant to Section 9 hereof.

5. CONTINUATION OF INDEMNITY. All agreements and obligations of the
Corporation contained herein shall continue during the period Agent is a
director, officer, employee or other agent of the Corporation (or is or was
serving at the request of the Corporation as a director, officer, employee or
other agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise) and shall continue thereafter so long as Agent
shall be subject to any possible claim or threatened, pending or completed
action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative, by reason of the fact that Agent was serving in
the capacity referred to herein.

6. PARTIAL INDEMNIFICATION. Agent shall be entitled under this Agreement
to indemnification by the Corporation for a portion of the expenses (including
attorneys' fees), witness fees, damages, judgments, fines and amounts paid in
settlement and any other amounts that Agent becomes legally obligated to pay in
connection with any action, suit or proceeding referred to in Section 3 hereof
even if not entitled hereunder to indemnification for the total amount thereof,
and the Corporation shall indemnify Agent for the portion thereof to which Agent
is entitled.

7. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30) days
after receipt by Agent of notice of the commencement of any action, suit or
proceeding, Agent will, if a claim in respect thereof is to be made against the
Corporation under this Agreement, notify the Corporation of the commencement
thereof; but the omission so to notify the Corporation will not relieve it from
any liability which it may have to Agent otherwise than under this Agreement.
With respect to any such action, suit or proceeding as to which Agent notifies
the Corporation of the commencement thereof:

(a) the Corporation will be entitled to participate therein at its
own expense;

(b) except as otherwise provided below, the Corporation may, at its
option and jointly with any other indemnifying party similarly notified and
electing to assume such defense, assume the defense thereof, with counsel
reasonably satisfactory to Agent. After notice from the Corporation to Agent of
its election to assume the defense thereof, the Corporation will not be liable
to Agent under this Agreement for any legal or other expenses subsequently
incurred by Agent in connection with the defense thereof except for reasonable
costs of investigation or otherwise as provided below. Agent shall have the
right to employ separate counsel in such action, suit or proceeding but the fees
and expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of Agent unless (i)
the employment of counsel by Agent has been authorized by the Corporation, (ii)
Agent shall have reasonably concluded that there may be a conflict of interest
between the Corporation and Agent in the conduct of the defense of such action
or (iii) the Corporation shall not in fact have employed counsel to assume the
defense of such action, in each of which cases the fees and expenses of Agent's
separate counsel shall be at the expense of the Corporation. The Corporation
shall not be entitled to assume the defense of any action, suit or proceeding
brought by or on behalf of the Corporation or as to which Agent shall have made
the conclusion provided for in clause (ii) above; and

3.
<PAGE>

(c) the Corporation shall not be liable to indemnify Agent under this
Agreement for any amounts paid in settlement of any action or claim effected
without its written consent, which shall not be unreasonably withheld. The
Corporation shall be permitted to settle any action except that it shall not
settle any action or claim in any manner which would impose any penalty or
limitation on Agent without Agent's written consent, which may be given or
withheld in Agent's sole discretion.

8. EXPENSES. The Corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by Agent in connection with such proceeding upon receipt of an
undertaking by or on behalf of Agent to repay said amounts if it shall be
determined ultimately that Agent is not entitled to be indemnified under the
provisions of this Agreement, the Bylaws, the Code or otherwise.

9. ENFORCEMENT. Any right to indemnification or advances granted by this
Agreement to Agent shall be enforceable by or on behalf of Agent in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. Agent, in such enforcement action, if
successful in whole or in part, shall be entitled to be paid also the expense of
prosecuting his or her claim. It shall be a defense to any action for which a
claim for indemnification is made under Section 3 hereof (other than an action
brought to enforce a claim for expenses pursuant to Section 8 hereof, provided
that the required undertaking has been tendered to the Corporation) that Agent
is not entitled to indemnification because of the limitations set forth in
Section 4 hereof. Neither the failure of the Corporation (including its Board
of Directors or its stockholders) to have made a determination prior to the
commencement of such enforcement action that indemnification of Agent is proper
in the circumstances, nor an actual determination by the Corporation (including
its Board of Directors or its stockholders) that such indemnification is
improper shall be a defense to the action or create a presumption that Agent is
not entitled to indemnification under this Agreement or otherwise.

10. SUBROGATION. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Agent, who shall execute all documents required and shall
do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.

11. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Agent by this
Agreement shall not be exclusive of any other right which Agent may have or
hereafter acquire under any statute, provision of the Corporation's Certificate
of Incorporation or Bylaws, agreement, vote of stockholders or directors, or
otherwise, both as to action in her official capacity and as to action in
another capacity while holding office.

12. SURVIVAL OF RIGHTS.

(a) The rights conferred on Agent by this Agreement shall continue
after Agent has ceased to be a director, officer, employee or other agent of the
Corporation or to serve at the request of the Corporation as a director,
officer, employee or other agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise and shall inure to the
benefit of Agent's heirs, executors and administrators.

4.
<PAGE>

(b) The Corporation shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Corporation, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such succession
had taken place.

13. SEPARABILITY. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others, so that if any provision
hereof shall be held to be invalid for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof. Furthermore, if this Agreement shall be invalidated in its
entirety on any ground, then the Corporation shall nevertheless indemnify Agent
to the fullest extent provided by the Bylaws, the Code or any other applicable
law.

14. ENTIRE AGREEMENT. This Agreement and the agreements referenced herein
constitute the entire agreement between the parties hereto pertaining to the
subject matter hereof, and any and all other written or oral agreements existing
between the parties hereto pertaining to the subject matters hereof are
superseded and expressly canceled.

15. GOVERNING LAW. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Delaware.

16. AMENDMENT AND TERMINATION. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless in writing signed by
both parties hereto.

17. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
but all of which together shall constitute but one and the same Agreement. Only
one such counterpart need be produced to evidence the existence of this
Agreement.

18. HEADINGS. The headings of the sections of this Agreement are inserted
for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction hereof.

19. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given (i)
upon delivery if delivered by hand to the party to whom such communication was
directed or (ii) upon the third business day after the date on which such
communication was mailed if mailed by certified or registered mail with postage
prepaid:

(a) If to Agent, at the address indicated on the signature page
hereof.

5.
<PAGE>

(b) If to the Corporation, to

Scientific Learning Corporation
1995 University Avenue
Suite 1400
Berkeley, CA 94704

or to such other address as may have been furnished to Agent by the Corporation.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the day and year first above written.

SCIENTIFIC LEARNING CORPORATION

By:
-------------------------------------
Sheryle J. Bolton
President and
Chief Executive Officer

AGENT

By:
-------------------------------------
Name:
-----------------------------------

Address:
---------------------------
---------------------------

<PAGE>

SCIENTIFIC LEARNING CORPORATION

1998 EQUITY INCENTIVE PLAN

ADOPTED FEBRUARY 19, 1996
APPROVED BY STOCKHOLDERS MARCH 30, 1996
AMENDED AND RESTATED SEPTEMBER 27, 1996
APPROVED BY STOCKHOLDERS JUNE 11, 1997
AMENDED AND RESTATED JUNE 6, 1998
APPROVED BY STOCKHOLDERS ____________, 1998
TERMINATION DATE: JUNE ___, 2008

1. PURPOSES.

(a) The Plan initially was established effective as of February 19, 1996
(the "Prior Plan"). The Prior Plan hereby is amended and restated in its
entirety as the Plan, effective as of the date of the closing of the initial
public offering ("IPO") of the common stock of the Company ("Common Stock").
The terms of the Prior Plan shall remain in effect and apply to all options
granted pursuant to the Prior Plan.

(b) The purpose of the Plan is to provide a means by which selected
Employees, Directors and Consultants may be given an opportunity to benefit from
increases in value of the Common Stock through the granting of (i) Incentive
Stock Options, (ii) Nonstatutory Stock Options, (iii) stock bonuses, (iv) rights
to purchase restricted stock and (v) Stock Appreciation Rights.

(c) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees, Directors or Consultants, to secure and retain
the services of new Employees, Directors and Consultants and to provide
incentives for such persons to exert maximum efforts for the success of the
Company and its Affiliates.

(d) The Company intends that the Stock Awards issued under the Plan shall,
in the discretion of the Board or any Committee to which responsibility for
administration of the Plan has been delegated pursuant to subsection 3(c), be
either (i) Options granted pursuant to Section 6 hereof, including Incentive
Stock Options and Nonstatutory Stock Options, (ii) stock bonuses or rights to
purchase restricted stock granted pursuant to Section 7 hereof or (iii) Stock
Appreciation Rights granted pursuant to Section 8 hereof. All Options shall be
separately designated Incentive Stock Options or Nonstatutory Stock Options at
the time of grant, and in such form as issued pursuant to Section 6, and a
separate certificate or certificates will be issued for shares purchased on
exercise of each type of Option.

2. DEFINITIONS.

(a) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.

(b) "BOARD" means the Board of Directors of the Company.

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(d) "COMMITTEE" means a Committee appointed by the Board in accordance
with subsection 3(c) of the Plan.

(e) "COMPANY" means Scientific Learning Corporation, a Delaware
corporation.

(f) "CONSULTANT" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated for
such services, provided that the term "Consultant" shall not include Directors
who are paid only a director's fee by the Company or who are not compensated by
the Company for their services as Directors.

(g) "CONTINUOUS SERVICE" means that the Optionee's employment or service
with the Company or an Affiliate of the Company, whether in the capacity of an
Employee, a Director or a Consultant, is not interrupted or terminated. The
Optionee's Continuous Service shall not be deemed to have terminated merely
because of a change in the capacity in which the Optionee renders employment or
service to the Company or an Affiliate or the Company or a change in the entity
for which the Optionee renders such employment or service, provided that there
is no interruption or termination of the Optionee's Continuous Service. The
Board or the Chief Executive Officer of the Company, in that party's sole
discretion, may determine whether Continuous Service shall be considered
interrupted in the case of any leave of absence approved by the Board or the
Chief Executive Officer of the Company, including sick leave, military leave, or
any other personal leave.

(h) "COVERED EMPLOYEE" means the Chief Executive Officer and the four (4)
other highest compensated officers of the Company for whom total compensation is
required to be reported to stockholders under the Exchange Act, as determined
for purposes of Section 162(m) of the Code.

(i) "DIRECTOR" means a member of the Board.

(j) "DISABILITY" means the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.

(k) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.

(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.

(m) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock of the Company determined as follows:

(1) If the Common Stock is listed on any established stock
exchange, or traded on the Nasdaq National Market or the Nasdaq SmallCap Market,
the Fair Market Value of a share of Common Stock shall be the closing sales
price for such stock (or the closing bid, if no sales were reported) as quoted
on such exchange or market (or the exchange or market with the greatest volume
of trading in Common Stock) on the trading day prior to the day of

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determination, as reported in the Wall Street Journal or such other source as
the Board deems reliable;

(2) In the absence of such markets for the Common Stock, the
Fair Market Value shall be determined in good faith by the Board.

(n) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.

(o) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act),
does not possess an interest in any other transaction as to which disclosure
would be required under Item 404(a) of Regulation S-K, and is not engaged in a
business relationship as to which disclosure would be required under Item 404(b)
of Regulation S-K; or (ii) is otherwise considered a "non-employee director" for
purposes of Rule 16b-3.

(p) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as
an Incentive Stock Option.

(q) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.

(r) "OPTION" means a stock option granted pursuant to the Plan.

(s) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option grant.
Each Option Agreement shall be subject to the terms and conditions of the Plan.

(t) "OPTIONEE" means a person to whom an Option is granted pursuant to the
Plan.

(u) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.

(v) "PLAN" means this Scientific Learning Corporation 1998 Equity
Incentive Plan.

(w) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any successor to
Rule 16b-3, as in effect when discretion is being exercised with respect to the
Plan.

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(x) "SECURITIES ACT" means the Securities Act of 1933, as amended.

(y) "STOCK APPRECIATION RIGHT" means any of the various types of rights
which may be granted under Section 8 of the Plan.

(z) "STOCK AWARD" means any right granted under the Plan, including any
Option, any stock bonus, any right to purchase restricted stock and any Stock
Appreciation Right.

(aa) "STOCK AWARD AGREEMENT" means a written agreement between the Company
and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to
the terms and conditions of the Plan.

3. ADMINISTRATION.

(a) The Board shall administer the Plan unless and until the Board
delegates administration to a Committee, as provided in subsection 3(c).

(b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:

(1) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; whether a Stock Award will be an Incentive Stock Option or a
Nonstatutory Stock Option, a stock bonus, a right to purchase restricted stock,
a Stock Appreciation Right or a combination of the foregoing; the provisions of
each Stock Award granted (which need not be identical), including the time or
times when a person shall be permitted to receive stock pursuant to a Stock
Award; whether a person shall be permitted to receive stock upon exercise of an
Independent Stock Appreciation Right; and the number of shares with respect to
which a Stock Award shall be granted to each such person.

(2) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.

(3) To amend the Plan or a Stock Award as provided in
Section 13.

(4) Generally, to exercise such powers and to perform such acts
as the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.

(c) The Board may delegate administration of the Plan to a Committee or
Committees of one or more members of the Board. In the discretion of the Board,
a Committee may consist solely of two or more Outside Directors, in accordance
with Code Section 162(m), or solely of two or more Non-Employee Directors, in
accordance with Rule 16b-3. If administration is delegated to a Committee, the
Committee shall have, in connection with the administration of the Plan, the
powers theretofore possessed by the Board (and references in this Plan to the
Board shall thereafter be to the

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Committee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan. Notwithstanding anything in this Section 3 to the
contrary, the Board or the Committee may delegate to a committee of one or more
members of the Board the authority to grant Options to eligible persons who (1)
are not then subject to Section 16 of the Exchange Act and/or (2) are either (i)
not then Covered Employees and are not expected to be Covered Employees at the
time of recognition of income resulting from such Option, or (ii) not persons
with respect to whom the Company wishes to comply with Section 162(m) of the
Code.

4. SHARES SUBJECT TO THE PLAN.

(a) Subject to the provisions of subsection 12(a) relating to adjustments
upon changes in stock, the stock that may be issued pursuant to Stock Awards
shall not exceed in the aggregate Two Million Eight Hundred Thousand (2,800,000)
shares of Common Stock. If any Stock Award shall for any reason expire or
otherwise terminate, in whole or in part, without having been exercised in full
(or vested in the case of restricted stock), the stock not acquired under such
Stock Award shall revert to and again become available for issuance under the
Plan. Shares subject to Stock Appreciation Rights exercised in accordance with
Section 8 of the Plan shall not be available for subsequent issuance under the
Plan.

(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.

5. ELIGIBILITY.

(a) Incentive Stock Options and Stock Appreciation Rights appurtenant
thereto may be granted only to Employees. Stock Awards other than Incentive
Stock Options and Stock Appreciation Rights appurtenant thereto may be granted
to Employees, Directors and Consultants.

(b) No person shall be eligible for the grant of an Incentive Stock Option
if, at the time of grant, such person owns (or is deemed to own pursuant to
Section 424(d) of the Code) stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or of any of
its Affiliates unless the exercise price of such Option is at least one hundred
ten percent (110%) of the Fair Market Value of such stock at the date of grant
and the Option is not exercisable after the expiration of five (5) years from
the date of grant.

(c) Subject to the provisions of Section 12 relating to adjustments upon
changes in stock, no employee shall be eligible to be granted Options and Stock
Appreciation Rights covering more than Six Hundred Twenty Five Thousand
(625,000) shares of the Common Stock in any calendar year.

6. OPTION PROVISIONS.

Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:

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(a) TERM. No Incentive Stock Option shall be exercisable after the
expiration of ten (10) years from the date it was granted.

(b) PRICE. The exercise price of each Incentive Stock Option shall be not
less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted, but the exercise price
of each Nonstatutory Stock Option shall be any price determined by the Board in
its sole discretion. Notwithstanding the foregoing, an Incentive Stock Option
may be granted with an exercise price lower than that set forth in the preceding
sentence if such Incentive Stock Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.

(c) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash or (ii) at the discretion of the Board (A) by
delivery to the Company of other Common Stock of the Company, (B) according to a
deferred payment (however, payment of the common stock's "par value," as defined
in the Delaware General Corporation Law, shall not be made by deferred payment),
or other arrangement (which may include, without limiting the generality of the
foregoing, the use of other Common Stock of the Company) with the person to whom
the Option is granted or to whom the Option is transferred pursuant to
subsection 6(d), or (C) in any other form of legal consideration that may be
acceptable to the Board.

In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.

(d) TRANSFERABILITY. An Incentive Stock Option shall not be transferable
except by will or by the laws of descent and distribution, and shall be
exercisable during the lifetime of the person to whom the Option is granted only
by such person. A Nonstatutory Stock Option may be transferred to the extent
provided in the Option Agreement; provided that if the Option Agreement does not
expressly permit the transfer of a Nonstatutory Stock Option, the Nonstatutory
Stock Option shall not be transferable except by will, by the laws of descent
and distribution or pursuant to a domestic relations order satisfying the
requirements of Rule 16 of the Exchange Act and shall be exercisable during the
lifetime of the person to whom the Option is granted only by such person or any
transferee pursuant to a domestic relations order. Notwithstanding the
foregoing, the person to whom the Option is granted may, by delivering written
notice to the Company, in a form satisfactory to the Company, designate a third
party who, in the event of the death of the Optionee, shall thereafter be
entitled to exercise the Option.

(e) VESTING. The total number of shares of stock subject to an Option
may, but need not, be allotted in periodic installments (which may, but need
not, be equal). The Option Agreement may provide that from time to time during
each of such installment periods, the Option may become exercisable ("vest")
with respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such period
and/or any prior period as to which the Option became vested but was not fully
exercised. The Option may be subject to such other terms and conditions on the
time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem appropriate. The vesting provisions of

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individual Options may vary. The provisions of this subsection 6(e) are subject
to any Option provisions governing the minimum number of shares as to which an
Option may be exercised.

(f) TERMINATION OF THE OPTIONEE'S CONTINUOUS SERVICE. In the event an
Optionee's Continuous Service terminates (other than upon the Optionee's death
or Disability), the Optionee may exercise his or her Option (to the extent that
the Optionee was entitled to exercise it at the date of termination) but only
within such period of time ending on the earlier of (i) the date three (3)
months after the termination of the Optionee's Continuous Service (or such
longer or shorter period specified in the Option Agreement), or (ii) the
expiration of the term of the Option as set forth in the Option Agreement. If,
after termination, the Optionee does not exercise his or her Option within the
time specified in the Option Agreement, the Option shall terminate, and the
shares covered by such Option shall revert to and again become available for
issuance under the Plan.

An Optionee's Option Agreement may also provide that, if the exercise of
the Option following the termination of the Optionee's Continuous Service (other
than upon the Optionee's death or Disability) would be prohibited at any time
solely because the issuance of shares would violate the registration
requirements under the Securities Act, then the Option shall terminate on the
earlier of (i) the expiration of the term of the Option as described in
subsection 6(a) or (ii) the expiration of a period of three (3) months after the
termination of the Optionee's Continuous Service during which the exercise of
the Option would not be in violation of such registration requirements (if such
provisions would result in an extension of the time during which the Option may
be exercised beyond the period described in the first paragraph of this
subsection 6(f)).

(g) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous Service
terminates as a result of the Optionee's Disability, the Optionee may exercise
his or her Option (to the extent that the Optionee was entitled to exercise it
at the date of termination), but only within such period of time ending on the
earlier of (i) the date twelve (12) months following such termination (or such
longer or shorter period specified in the Option Agreement, or (ii) the
expiration of the term of the Option as set forth in the Option Agreement. If,
at the date of termination, the Optionee is not entitled to exercise his or her
entire Option, the shares covered by the unexercisable portion of the Option
shall revert to and again become available for issuance under the Plan. If,
after termination, the Optionee does not exercise his or her Option within the
time specified herein, the Option shall terminate, and the shares covered by
such Option shall revert to and again become available for issuance under the
Plan.

(h) DEATH OF OPTIONEE. In the event of the death of an Optionee during,
or within a period specified in the Option after the termination of, the
Optionee's Continuous Service, the Option may be exercised (to the extent the
Optionee was entitled to exercise the Option at the date of death) by the
Optionee's estate, by a person who acquired the right to exercise the Option by
bequest or inheritance or by a person designated to exercise the option upon the
Optionee's death pursuant to subsection 6(d), but only within the period ending
on the earlier of (i) the date eighteen (18) months following the date of death
(or such longer or shorter period specified in the Option Agreement), or (ii)
the expiration of the term of such Option as set forth in the Option Agreement.
If, at the time of death, the Optionee was not entitled to exercise his or her
entire Option, the shares covered by the unexercisable portion of the Option
shall revert to and again become available for issuance under the Plan. If,
after death, the Option is not exercised within the time specified herein, the
Option shall

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terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.

(i) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionee may elect at any time before the Optionee's Continuous
Service terminates to exercise the Option as to any part or all of the shares
subject to the Option prior to the full vesting of the Option. Any unvested
shares so purchased may be subject to a repurchase right in favor of the Company
or to any other restriction the Board determines to be appropriate.

(j) RE-LOAD OPTIONS. Without in any way limiting the authority of the
Board to make or not to make grants of Options hereunder, the Board shall have
the authority (but not an obligation) to include as part of any Option Agreement
a provision entitling the Optionee to a further Option (a "Re-Load Option") in
the event the Optionee exercises the Option evidenced by the Option Agreement,
in whole or in part, by surrendering other shares of Common Stock in accordance
with this Plan and the terms and conditions of the Option Agreement. Any such
Re-Load Option (i) shall be for a number of shares equal to the number of shares
surrendered as part or all of the exercise price of such Option; (ii) shall have
an expiration date which is the same as the expiration date of the Option the
exercise of which gave rise to such Re-Load Option; and (iii) shall have an
exercise price which is equal to one hundred percent (100%) of the Fair Market
Value of the Common Stock subject to the Re-Load Option on the date of exercise
of the original Option. Notwithstanding the foregoing, a Re-Load Option which
is an Incentive Stock Option and which is granted to a 10% stockholder (as
described in subsection 5(b)), shall have an exercise price which is equal to
one hundred ten percent (110%) of the Fair Market Value of the stock subject to
the Re-Load Option on the date of exercise of the original Option and shall have
a term which is no longer than five (5) years.

Any such Re-Load Option may be an Incentive Stock Option or a Nonstatutory
Stock Option, as the Board may designate at the time of the grant of the
original Option; provided, however, that the designation of any Re-Load Option
as an Incentive Stock Option shall be subject to the one hundred thousand
dollars ($100,000) annual limitation on exercisability of Incentive Stock
Options described in subsection 11(e) of the Plan and in Section 422(d) of the
Code. There shall be no Re-Load Options on a Re-Load Option. Any such Re-Load
Option shall be subject to the availability of sufficient shares under
subsection 4(a) and shall be subject to such other terms and conditions as the
Board may determine which are not inconsistent with the express provisions of
the Plan regarding the terms of Options.

7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.

Each stock bonus or restricted stock purchase agreement shall be in such
form and shall contain such terms and conditions as the Board shall deem
appropriate. The terms and conditions of stock bonus or restricted stock
purchase agreements may change from time to time, and the terms and conditions
of separate agreements need not be identical, but each stock bonus or restricted
stock purchase agreement shall include (through incorporation of provisions
hereof by reference in the agreement or otherwise) the substance of each of the
following provisions as appropriate:

(a) PURCHASE PRICE. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board shall determine and
designate in such agreement.

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Notwithstanding the foregoing, the Board may determine that eligible
participants in the Plan may be awarded stock pursuant to a stock bonus
agreement in consideration for past services actually rendered to the Company
for its benefit.

(b) TRANSFERABILITY. Rights under a stock bonus or restricted stock
purchase agreement may be transferred to the extent provided in the agreement;
provided that if the agreement does not expressly permit the transfer of such
rights, no rights under the agreement shall be transferable except by will or
the laws of descent and distribution or, if the agreement so provides, pursuant
to a domestic relations order satisfying the requirements of Rule 16b-3 so long
as stock awarded under such agreement remains subject to the terms of the
agreement.

(c) CONSIDERATION. The purchase price of stock acquired pursuant to a
stock purchase agreement shall be paid either: (i) in cash; (ii) at the
discretion of the Board, according to a deferred payment or other arrangement
with the person to whom the stock is sold; or (iii) in any other form of legal
consideration that may be acceptable to the Board in its discretion.
Notwithstanding the foregoing, the Board to which administration of the Plan has
been delegated may award stock pursuant to a stock bonus agreement in
consideration for past services actually rendered to the Company or for its
benefit.

(d) VESTING. Shares of stock sold or awarded under the Plan may, but need
not, be subject to a repurchase option in favor of the Company in accordance
with a vesting schedule to be determined by the Board.

(e) TERMINATION OF CONTINUOUS SERVICE. In the event the Stock Award
recipient's Continuous Service terminates, the Company may repurchase or
otherwise reacquire any or all of the shares of stock held by that person which
have not vested as of the date of termination under the terms of the stock bonus
or restricted stock purchase agreement between the Company and such person.

8. STOCK APPRECIATION RIGHTS.

(a) To exercise any outstanding Stock Appreciation Right, the holder must
provide written notice of exercise to the Company in compliance with the
provisions of the Stock Award Agreement evidencing such right. Except as
provided in subsection 5(c), no limitation shall exist on the aggregate amount
of cash payments the Company may make under the Plan in connection with the
exercise of a Stock Appreciation Right.

(b) Three types of Stock Appreciation Rights shall be authorized for
issuance under the Plan:

(1) TANDEM STOCK APPRECIATION RIGHTS. Tandem Stock Appreciation
Rights will be granted appurtenant to an Option, and shall, except as
specifically set forth in this Section 8, be subject to the same terms and
conditions applicable to the particular Option grant to which it pertains.
Tandem Stock Appreciation Rights will require the holder to elect between the
exercise of the underlying Option for shares of stock and the surrender, in
whole or in part, of such Option for an appreciation distribution. The
appreciation distribution payable on the exercised

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Tandem Right shall be in cash (or, if so provided, in an equivalent number of
shares of stock based on Fair Market Value on the date of the Option surrender)
in an amount up to the excess of (A) the Fair Market Value (on the date of the
Option surrender) of the number of shares of stock covered by that portion of
the surrendered Option in which the Optionee is vested over (B) the aggregate
exercise price payable for such vested shares.

(2) CONCURRENT STOCK APPRECIATION RIGHTS. Concurrent Rights
will be granted appurtenant to an Option and may apply to all or any portion of
the shares of stock subject to the underlying Option and shall, except as
specifically set forth in this Section 8, be subject to the same terms and
conditions applicable to the particular Option grant to which it pertains. A
Concurrent Right shall be exercised automatically at the same time the
underlying Option is exercised with respect to the particular shares of stock to
which the Concurrent Right pertains. The appreciation distribution payable on
an exercised Concurrent Right shall be in cash (or, if so provided, in an
equivalent number of shares of stock based on Fair Market Value on the date of
the exercise of the Concurrent Right) in an amount equal to such portion as
shall be determined by the Board or the Committee at the time of the grant of
the excess of (A) the aggregate Fair Market Value (on the date of the exercise
of the Concurrent Right) of the vested shares of stock purchased under the
underlying Option which have Concurrent Rights appurtenant to them over (B) the
aggregate exercise price paid for such shares.

(3) INDEPENDENT STOCK APPRECIATION RIGHTS. Independent Rights
will be granted independently of any Option and shall, except as specifically
set forth in this Section 8, be subject to the same terms and conditions
applicable to Nonstatutory Stock Options as set forth in Section 6. They shall
be denominated in share equivalents. The appreciation distribution payable on
the exercised Independent Right shall be not greater than an amount equal to the
excess of (A) the aggregate Fair Market Value (on the date of the exercise of
the Independent Right) of a number of shares of Company stock equal to the
number of share equivalents in which the holder is vested under such Independent
Right, and with respect to which the holder is exercising the Independent Right
on such date, over (B) the aggregate Fair Market Value (on the date of the grant
of the Independent Right) of such number of shares of Company stock. The
appreciation distribution payable on the exercised Independent Right shall be in
cash or, if so provided, in an equivalent number of shares of stock based on
Fair Market Value on the date of the exercise of the Independent Right.

9. COVENANTS OF THE COMPANY.

(a) During the terms of the Stock Awards, the Company shall keep available
at all times the number of shares of stock required to satisfy such Stock
Awards.

(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares under Stock Awards; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Stock Award or any stock issued or issuable pursuant to any such
Stock Award. If, after reasonable efforts, the Company is unable to obtain from
any such regulatory commission or agency the authority which counsel for the
Company deems necessary for the lawful issuance and sale of stock under the
Plan, the Company shall be relieved from any liability

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for failure to issue and sell stock upon exercise of such Stock Awards unless
and until such authority is obtained.

10. USE OF PROCEEDS FROM STOCK.

Proceeds from the sale of stock pursuant to Stock Awards shall constitute
general funds of the Company.

11. MISCELLANEOUS.

(a) The Board shall have the power to accelerate the time at which a Stock
Award may first be exercised or the time during which a Stock Award or any part
thereof will vest, notwithstanding the provisions in the Stock Award stating the
time at which it may first be exercised or the time during which it will vest.

(b) Neither the recipient of a Stock Award nor any person to whom a Stock
Award is transferred in accordance with the Plan shall be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any shares
subject to such Stock Award unless and until such person has satisfied all
requirements for exercise of the Stock Award pursuant to its terms.

(c) Nothing in the Plan or any instrument executed or Stock Award granted
pursuant thereto shall confer upon any recipient or other holder of Stock Awards
any right to continue in the employ of the Company or any Affiliate or to
continue serving as a Consultant or a Director, or shall affect the right of the
Company or any Affiliate to terminate the employment of any Employee with or
without notice and with or without cause, or the right to terminate the
relationship of any Consultant pursuant to the terms of such Consultant's
agreement with the Company or Affiliate or service as a Director pursuant to the
Company's Bylaws and the provisions of the corporate law of the state in which
the Company is incorporated.

(d) To the extent that the aggregate Fair Market Value (determined at the
time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds one hundred thousand dollars
($100,000), the Options or portions thereof which exceed such limit (according
to the order in which they were granted) shall be treated as Nonstatutory Stock
Options.

(e) The Company may require any person to whom a Stock Award is granted,
or any person to whom a Stock Award is transferred in accordance with the Plan,
as a condition of exercising or acquiring stock under any Stock Award, (1) to
give written assurances satisfactory to the Company as to such person's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters, and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (2) to
give written assurances satisfactory to the Company stating that such person is
acquiring the stock subject to the Stock Award for such person's own account and
not with any present intention of selling or otherwise distributing the stock.
The foregoing requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the shares upon the
exercise or acquisition of stock under the Stock Award has been registered under
a then currently effective

11.
<PAGE>

registration statement under the Securities Act, or (ii) as to any particular
requirement, a determination is made by counsel for the Company that such
requirement need not be met in the circumstances under the then applicable
securities laws. The Company may, upon advice of counsel to the Company, place
legends on stock certificates issued under the Plan as such counsel deems
necessary or appropriate in order to comply with applicable securities laws,
including, but not limited to, legends restricting the transfer of the stock.

(f) To the extent provided by the terms of a Stock Award Agreement, the
person to whom a Stock Award is granted may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of stock
under a Stock Award by any of the following means (in addition to the Company's
right to withhold from any compensation paid to such person by the Company) or
by a combination of such means: (1) tendering a cash payment; (2) authorizing
the Company to withhold shares from the shares of the Common Stock otherwise
issuable to the participant as a result of the exercise or acquisition of stock
under the Stock Award; or (3) delivering to the Company owned and unencumbered
shares of the Common Stock of the Company.

12. ADJUSTMENTS UPON CHANGES IN STOCK.

(a) If any change is made in the stock subject to the Plan, or subject to
any Stock Award, without the receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company), the Plan will be appropriately adjusted in the class(es) and maximum
number of shares subject to the Plan pursuant to subsection 4(a) and the maximum
number of shares subject to award to any person during any calendar year
pursuant to subsection 5(c), and the outstanding Stock Awards will be
appropriately adjusted in the class(es) and number of shares and price per share
of stock subject to such outstanding Stock Awards. Such adjustments shall be
made by the Board, the determination of which shall be final, binding and
conclusive. (The conversion of any convertible securities of the Company shall
not be treated as a "transaction not involving the receipt of consideration by
the Company".)

(b) In the event of a proposed dissolution or liquidation of the Company,
the Board shall notify the Stock Award holder at least fifteen (15) days prior
to such proposed action. To the extent it has not been previously exercised,
the Stock Award shall terminate immediately prior to the consummation of such
proposed action.

(c) In the event of: (1) a dissolution, liquidation or sale of
substantially all of the assets of the Company; (2) a merger or consolidation
in which the Company is not the surviving corporation; or (3) a reverse merger
in which the Company is the surviving corporation but the shares of Common
Stock outstanding immediately preceding the merger are converted by virtue of
the merger into other property, whether in the form of securities, cash or
otherwise, then (i) any surviving corporation or acquiring corporation shall
assume any Stock Awards outstanding under the Plan or shall substitute similar
stock awards (including an award to acquire the same consideration paid to the
stockholders in the transaction described in this subsection 12(b)) for those
outstanding under the Plan, or (ii) in the event any surviving corporation or
acquiring corporation refuses to assume such Stock Awards or to substitute
similar stock awards for those outstanding under the Plan, (A) with respect to
Stock

12.
<PAGE>

Awards held by persons whose Continuous Service has not terminated, the vesting
of such Stock Awards (and, if applicable, the time during which such Stock
Awards may be exercised) shall be accelerated prior to such event and the Stock
Awards terminated if not exercised (if applicable) after such acceleration and
at or prior to such event, and (B) with respect to any other Stock Awards
outstanding under the Plan, such Stock Awards shall be terminated if not
exercised (if applicable) prior to such event.

(d) In the event of the acquisition by any person, entity or group within
the meaning of Section 13(d) or 14(d) of the Exchange Act, or any comparable
successor provisions (excluding any employee benefit plan, or related trust,
sponsored or maintained by the Company or any Affiliate of the Company) of the
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act, or comparable successor rule) of securities of the Company
representing at least fifty percent (50%) of the combined voting power entitled
to vote in the election of directors, then, with respect to Stock Awards held by
persons whose Continuous Service has not terminated, the vesting of such Stock
Awards (and, if applicable, the time during which such Stock Awards may be
exercised) shall be accelerated immediately upon the happening of such event.

13. AMENDMENT OF THE PLAN AND STOCK AWARDS.

(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 12 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company to the extent stockholder approval is necessary for the Plan to
satisfy the requirements of Section 422 of the Code, Rule 16b-3 or any Nasdaq or
securities exchange listing requirements.

(b) The Board may in its sole discretion submit any other amendment to the
Plan for stockholder approval, including, but not limited to, amendments to the
Plan intended to satisfy the requirements of Section 162(m) of the Code and the
regulations thereunder regarding the exclusion of performance-based compensation
from the limit on corporate deductibility of compensation paid to certain
executive officers.

(c) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide eligible Optionees
with the maximum benefits provided or to be provided under the provisions of the
Code and the regulations promulgated thereunder relating to Incentive Stock
Options and/or to bring the Plan and/or Incentive Stock Options granted under it
into compliance therewith.

(d) Rights under any Stock Award granted before amendment of the Plan
shall not be impaired by any amendment of the Plan unless (i) the Company
requests the consent of the person to whom the Stock Award was granted and (ii)
such person consents in writing.

(e) The Board at any time, and from time to time, may amend the terms of
any one or more Stock Awards; provided, however, that the rights under any Stock
Award shall not be impaired by any such amendment unless (i) the Company
requests the consent of the person to whom the Stock Award was granted and (ii)
such person consents in writing.

13.
<PAGE>

14. TERMINATION OR SUSPENSION OF THE PLAN.

(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate ten (10) years from the date the
Plan is adopted by the Board or approved by the stockholders of the Company,
whichever is earlier. No Stock Awards may be granted under the Plan while the
Plan is suspended or after it is terminated. Notwithstanding the foregoing, all
Incentive Stock Options shall be granted, if at all, no later than the last day
preceding the tenth (10th) anniversary of the earlier of (i) the date on which
the latest increase in the maximum number of shares issuable under the Plan was
approved by the stockholders of the Company or (ii) the date such amendment was
adopted by the Board.

(b) Rights and obligations under any Stock Award granted while the Plan is
in effect shall not be impaired by suspension or termination of the Plan, except
with the consent of the person to whom the Stock Award was granted.

15. EFFECTIVE DATE OF PLAN.

The Plan shall become effective as of the date of the closing of the IPO,
but no Options or rights to purchase restricted stock granted under the Plan
shall be exercised, and no stock bonuses shall be granted under the Plan, unless
and until the Plan has been approved by the stockholders of the Company, which
approval shall be within twelve (12) months before or after the date the Plan
was adopted by the Board.

14.

<PAGE>

SCIENTIFIC LEARNING CORPORATION
1998 EQUITY INCENTIVE PLAN

STOCK OPTION AGREEMENT
(INCENTIVE AND NONSTATUTORY STOCK OPTIONS)

Pursuant to the Stock Option Grant Notice ("Grant Notice") and this Stock
Option Agreement, Scientific Learning Corporation (the "Company") has granted
you an option under its 1998 Equity Incentive Plan (the "Plan") to purchase the
number of shares of the Company's Common Stock indicated in the Grant Notice at
the exercise price indicated in the Grant Notice. Defined terms not explicitly
defined in this Stock Option Agreement but defined in the Plan shall have the
same definitions as in the Plan.

The details of your option are as follows:

1. VESTING. Subject to the limitations contained herein, your option
will vest as provided in the Grant Notice, provided that vesting will cease upon
the termination of your Continuous Service.

2. NUMBER OF SHARES AND EXERCISE PRICE. The number of shares subject to
your option and your exercise price per share referenced in the Grant Notice may
be adjusted from time to time for Capitalization Adjustments, as provided in the
Plan.

3. EXERCISE PRIOR TO VESTING ("EARLY EXERCISE"). If permitted in the
Grant Notice (i.e., the "Exercise Schedule" indicates that "Early Exercise" of
your option is permitted) and subject to the provisions of this option, you may
elect at any time that is both (i) during the period of your Continuous Service
and (ii) during the term of your option, to exercise all or part of your option,
including the nonvested portion of your option; provided, however, that:

(a) a partial exercise of your option shall be deemed to cover first
vested shares and then the earliest vesting installment of unvested shares;

(b) any shares so purchased from installments which have not vested
as of the date of exercise shall be subject to the purchase option in favor of
the Company as described in the Company's form of Early Exercise Stock Purchase
Agreement;

(c) you shall enter into the Company's form of Early Exercise Stock
Purchase Agreement with a vesting schedule that will result in the same vesting
as if no early exercise had occurred; and

(d) if your option is an incentive stock option, then, as provided in
the Plan, to the extent that the aggregate Fair Market Value (determined at the
time of grant) of stock with respect to which your option plus all other
incentive stock options you hold are exercisable for the first time by you
during any calendar year (under all plans of the Company and its Affiliates)
exceeds one hundred thousand dollars ($100,000), the options or portions thereof
that exceed

1
<PAGE>

such limit (according to the order in which they were granted) shall be treated
as nonstatutory stock options.

4. METHOD OF PAYMENT. Payment of the exercise price is due in full upon
exercise of all or any part of your option. You may elect to make payment of
the exercise price in cash or by check or in any other manner PERMITTED BY THE
GRANT NOTICE, which may include one or more of the following:

(a) In the Company's sole discretion at the time your option is
exercised and provided that at the time of exercise the Common Stock is publicly
traded and quoted regularly in THE WALL STREET JOURNAL, pursuant to a program
developed under Regulation T as promulgated by the Federal Reserve Board which,
prior to the issuance of Common Stock, results in either the receipt of cash (or
check) by the Company or the receipt of irrevocable instructions to pay the
aggregate exercise price to the Company from the sales proceeds.

(b) Provided that at the time of exercise the Common Stock is
publicly traded and quoted regularly in THE WALL STREET JOURNAL, by delivery of
already-owned shares of Common Stock, held for the period required to avoid a
charge to the Company's reported earnings (generally six months) or were not
acquired, directly or indirectly from the Company, owned free and clear of any
liens, claims, encumbrances or security interests, and valued at its Fair Market
Value on the date of exercise. "Delivery" for these purposes, in the sole
discretion of the Company at the time your option is exercised, shall include
delivery to the Company of your attestation of ownership of such shares of
Common Stock in a form approved by the Company. Notwithstanding the foregoing,
your option may not be exercised by tender to the Company of Common Stock to the
extent such tender would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock.

(i) Not less than one hundred percent (100%) of the aggregate
exercise price, plus accrued interest, shall be due four (4) years from date of
exercise or, at the Company's election, upon termination of your Continuous
Service.

(ii) Interest shall be compounded at least annually and shall
be charged at the minimum rate of interest necessary to avoid the treatment as
interest, under any applicable provisions of the Code, of any portion of any
amounts other than amounts stated to be interest under the deferred payment
arrangement.

(iii) At any time that the Company is incorporated in Delaware,
payment of the Common Stock's "par value," as defined in the Delaware General
Corporation Law, shall be made in cash and not by deferred payment.

(iv) In order to elect the deferred payment alternative, you
must, as a part of your written notice of exercise, give notice of the election
of this payment alternative and, in order to secure the payment of the deferred
exercise price to the Company hereunder, if the

2
<PAGE>

Company so requests, you must tender to the Company a promissory note and a
security agreement covering the purchased shares, both in form and substance
satisfactory to the Company, or such other or additional documentation as the
Company may request.

5. WHOLE SHARES. Your option may only be exercised for whole shares.

6. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, your option may not be exercised unless the shares issuable
upon exercise of your option are then registered under the Securities Act or, if
such shares are not then so registered, the Company has determined that such
exercise and issuance would be exempt from the registration requirements of the
Securities Act. The exercise of your option must also comply with other
applicable laws and regulations governing the option, and the option may not be
exercised if the Company determines that the exercise would not be in material
compliance with such laws and regulations.

7. TERM. The term of your option commences on the Date of Grant and
expires upon the EARLIEST of the following:

(a) three (3) months after the termination of your Continuous Service
for any other reason, provided that if during any part of such three- (3-)month
period the option is not exercisable solely because of the condition set forth
in paragraph 6, the option shall not expire until the earlier of the Expiration
Date or until it shall have been exercisable for an aggregate period of three
(3) months after the termination of your Continuous Service;

(b) twelve (12) months after the termination of your Continuous
Service due to Disability;

(c) eighteen (18) months after your death if you die either during
your Continuous Service or within three (3) months after your Continuous Service
terminates;

(d) the Expiration Date indicated in the Grant Notice; or

(e) the tenth (10th) anniversary of the Date of Grant.

If your option is an incentive stock option, note that, to obtain the
federal income tax advantages associated with an "incentive stock option," the
Code requires that at all times beginning on the date of grant of the option and
ending on the day three (3) months before the date of the option's exercise, you
must be an employee of the Company or an Affiliate, except in the event of your
death or your Disability. The Company has provided for extended exercisability
of your option under certain circumstances for your benefit, but cannot
guarantee that your option will necessarily be treated as an "incentive stock
option" if you provide services to the Company or an Affiliate as a Consultant
or Director or if you exercise your option more than three (3) months after the
date your employment with the Company or an Affiliate terminates.

3
<PAGE>

8. EXERCISE.

(a) You may exercise the vested portion of your option (and the
unvested portion of your option if the Grant Notice so permits) during its term
by delivering a Notice of Exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require.

(b) By exercising your option you agree that, as a condition to any
exercise of your option, the Company may require you to enter an arrangement
providing for the payment by you to the Company of any tax withholding
obligation of the Company arising by reason of (1) the exercise of your option,
(2) the lapse of any substantial risk of forfeiture to which the shares are
subject at the time of exercise, or (3) the disposition of shares acquired upon
such exercise.

(c) If your option is an incentive stock option, by exercising your
option you agree that you will notify the Company in writing within fifteen (15)
days after the date of any disposition of any of the shares of the Common Stock
issued upon exercise of your option that occurs within two (2) years after the
date of your option grant or within one (1) year after such shares of Common
Stock are transferred upon exercise of your option.

9. TRANSFERABILITY. Your option is not transferable, except by will or
by the laws of descent and distribution, and is exercisable during your life
only by you. Notwithstanding the foregoing, by delivering written notice to the
Company, in a form satisfactory to the Company, you may designate a third party
who, in the event of your death, shall thereafter be entitled to exercise your
option.

10. RIGHT OF FIRST REFUSAL/RIGHT OF REPURCHASE. Vested shares that are
received upon exercise of your option are subject to any right of first refusal
that may be described in the Company's bylaws in effect at such time the Company
elects to exercise its right. The Company's right of first refusal shall expire
on the date of the first registration of an equity security of the Company under
Section 12 of the Exchange Act. In addition, to the extent provided in the
Company's bylaws as amended from time to time, the Company shall have the right
to repurchase all or any part of the shares received pursuant to the exercise of
your option.

11. OPTION NOT A SERVICE CONTRACT. Your option is not an employment or
service contract, and nothing in your option shall be deemed to create in any
way whatsoever any obligation on your part to continue in the employ of the
Company or an Affiliate, or of the Company or an Affiliate to continue your
employment. In addition, nothing in your option shall obligate the Company or
an Affiliate, their respective shareholders, Boards of Directors, Officers or
Employees to continue any relationship that you might have as a Director or
Consultant for the Company or an Affiliate.

12. WITHHOLDING OBLIGATIONS.

(a) At the time your option is exercised, in whole or in part, or at
any time thereafter as requested by the Company, you hereby authorize
withholding from payroll and any

4
<PAGE>

other amounts payable to you, and otherwise agree to make adequate provision for
(including by means of a "cashless exercise" pursuant to a program developed
under Regulation T as promulgated by the Federal Reserve Board to the extent
permitted by the Company), any sums required to satisfy the federal, state,
local and foreign tax withholding obligations of the Company or an Affiliate, if
any, which arise in connection with your option.

(b) Upon your request and subject to approval by the Company, in its
sole discretion, and compliance with any applicable conditions or restrictions
of law, the Company may withhold from fully vested shares of Common Stock
otherwise issuable to you upon the exercise of your option a number of whole
shares having a Fair Market Value, determined by the Company as of the date of
exercise, not in excess of the minimum amount of tax required to be withheld by
law. If the date of determination of any tax withholding obligation is deferred
to a date later than the date of exercise of your option, share withholding
pursuant to the preceding sentence shall not be permitted unless you make a
proper and timely election under Section 83(b) of the Code, covering the
aggregate number of shares of Common Stock acquired upon such exercise with
respect to which such determination is otherwise deferred, to accelerate the
determination of such tax withholding obligation to the date of exercise of your
option. Notwithstanding the filing of such election, shares shall be withheld
solely from fully vested shares of Common Stock determined as of the date of
exercise of your option that are otherwise issuable to you upon such exercise.
Any adverse consequences to you arising in connection with such share
withholding procedure shall be your sole responsibility.

(c) Your option is not exercisable unless the tax withholding
obligations of the Company and/or any Affiliate are satisfied. Accordingly, you
may not be able to exercise your option when desired even though your option is
vested, and the Company shall have no obligation to issue a certificate for such
shares or release such shares from any escrow provided for herein.

13. NOTICES. Any notices provided for in your option or the Plan shall be
given in writing and shall be deemed effectively given upon receipt or, in the
case of notices delivered by the Company to you, five (5) days after deposit in
the United States mail, postage prepaid, addressed to you at the last address
you provided to the Company.

14. GOVERNING PLAN DOCUMENT. Your option is subject to all the provisions
of the Plan, the provisions of which are hereby made a part of your option, and
is further subject to all interpretations, amendments, rules and regulations
which may from time to time be promulgated and adopted pursuant to the Plan. In
the event of any conflict between the provisions of your option and those of the
Plan, the provisions of the Plan shall control.

<PAGE>

SCIENTIFIC LEARNING CORPORATION
STOCK OPTION GRANT NOTICE
(1998 EQUITY INCENTIVE PLAN)

Scientific Learning Corporation (the "Company"), pursuant to its 1998 Equity
Incentive Plan (the "Plan"), hereby grants to Optionee, an option to purchase
the number of shares of the Company's Common Stock set forth below. This option
is subject to all of the terms and conditions as set forth herein and in the
Stock Option Agreement, the Plan and the Notice of Exercise, all of which are
attached hereto and incorporated herein in their entirety.

Optionee:
-----------------------------
Date of Grant:
-----------------------------
Vesting Commencement Date:
-----------------------------
Number of Shares Subject to Option:
-----------------------------
Exercise Price Per Share:
-----------------------------
Expiration Date:
-----------------------------

TYPE OF GRANT: / / Incentive Stock Option / / Nonstatutory Stock Option

EXERCISE SCHEDULE: / / Same as Vesting Schedule / / Early Exercise Permitted

VESTING SCHEDULE: 25% of shares will vest one year after the Vesting
Commencement Date.
1/48th of the shares vest monthly thereafter over the next
three years.(1)

PAYMENT: By one or a combination of the following items (described in
the Stock Option Agreement):

By cash or check
Pursuant to a Regulation T Program if the Shares are
publicly traded
By delivery of already-owned shares if the Shares are
publicly traded
[By deferred payment]

ADDITIONAL TERMS/ACKNOWLEDGEMENTS: The undersigned Optionee acknowledges
receipt of, and understands and agrees to, this Grant Notice, the Stock Option
Agreement and the Plan. Optionee further acknowledges that as of the Date of
Grant, this Grant Notice, the Stock Option Agreement and the Plan set forth the
entire understanding between Optionee and the Company regarding the acquisition
of stock in the Company and supersede all prior oral and written agreements on
that subject with the exception of (i) options previously granted and delivered
to Optionee under the Plan, and (ii) the following agreements only:

OTHER AGREEMENTS:
-----------------------------------
-----------------------------------

SCIENTIFIC LEARNING CORPORATION OPTIONEE:

By:
------------------------------------- ------------------------------
Signature Signature

Title: Date:
---------------------------------- -------------------------
Date:
-----------------------------------

ATTACHMENTS: Stock Option Agreement, 1998 Equity Incentive Plan and Notice of
Exercise

- ------------------------
(1) PLAN'S STANDARD VESTING SCHEDULE - USE VESTING SCHEDULE APPROVED BY BOARD
FOR PARTICULAR OPTIONEE, IF DIFFERENT FROM ABOVE.

<PAGE>

ATTACHMENT I

STOCK OPTION AGREEMENT

<PAGE>

ATTACHMENT II

SCIENTIFIC LEARNING CORPORATION

1998 EQUITY INCENTIVE PLAN

<PAGE>

ATTACHMENT III

NOTICE OF EXERCISE

<PAGE>

SCIENTIFIC LEARNING CORPORATION
1998 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN

ADOPTED JUNE 6, 1998
APPROVED BY STOCKHOLDERS _________________, 1998
TERMINATION DATE: JUNE ___, 2008

1. PURPOSE.

(a) The purpose of the 1998 Non-Employee Directors' Stock Option Plan (the
"Plan") is to provide a means by which each member of the Board of Directors of
Scientific Learning Corporation (the "Company") who is not otherwise at the time
of grant an employee of or consultant to the Company or of any Affiliate of the
Company, or a holder or a representative of the holder of 5% or more of the
Company's capital stock (each such person being hereafter referred to as a
"Non-Employee Director") will be given an opportunity to purchase stock of
the Company.

(b) The word "Affiliate" as used in the Plan means any parent corporation
or subsidiary corporation of the Company as those terms are defined in Sections
424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended
from time to time (the "Code").

(c) The Company, by means of the Plan, seeks to retain the services of
persons now serving as Non-Employee Directors of the Company, to secure and
retain the services of persons capable of serving in such capacity, and to
provide incentives for such persons to exert maximum efforts for the success of
the Company.

2. ADMINISTRATION.

(a) The Board of Directors of the Company (the "Board") shall administer
the Plan unless and until the Board delegates administration to a committee, as
provided in subparagraph 2(b).

(b) The Board may delegate administration of the Plan to a committee
composed of two (2) or more members of the Board (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.

3. SHARES SUBJECT TO THE PLAN.

(a) Subject to the provisions of paragraph 10 relating to adjustments upon
changes in stock, the stock that may be sold pursuant to options granted under
the Plan shall not exceed in the aggregate One Hundred Thousand (100,000) shares
of the Company's common stock. If any option granted under the Plan shall for
any reason expire or

1.
<PAGE>

otherwise terminate without having been exercised in full, the stock not
purchased under such option shall again become available for the Plan.

(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.

4. ELIGIBILITY.

Options shall be granted only to Non-Employee Directors of the Company.

5. NON-DISCRETIONARY GRANTS AND COMPENSATION.

(i) Upon the closing of the initial public offering (the "IPO") of
the Company, each person who is then a Non-Employee Director, and after the IPO,
upon the election to the Board of Directors of a new member who is a
Non-Employee Director, automatically shall be granted options to purchase
Twenty Thousand (20,000) shares of common stock of the Company on the
terms and conditions set forth herein; provided, however, that (unless
otherwise determined by a majority of disinterested Directors) such Initial
Grant shall only be granted to Non-Employee Directors who have not previously
been granted stock options or had the opportunity to purchase restricted stock
in the Company in connection with their service as a Director of the Company.

(b) Each person who is a Non-Employee Director on the first anniversary of
the IPO automatically shall, on such day and each anniversary thereafter, be
granted an option to purchase Four Thousand (4,000) shares of common stock of
the Company on the terms and conditions set forth herein (an "Annual Grant").

(c) Each person who is elected for the first time to be a Non-Employee
Director after the first anniversary of the IPO automatically also shall be
granted an Annual Grant on each anniversary of the date such Non-Employee
Director was elected to be a Non-Employee Director by the Board or stockholders.

6. OPTION PROVISIONS.

Each option shall be subject to the following terms and conditions:

(a) The term of each option commences on the date it is granted and,
unless sooner terminated as set forth herein, expires on the date ten (10) years
from the date of grant ("Expiration Date"). If the optionee's service as a
Non-Employee Director of the Company or an employee, member of the Board of
Directors or consultant to the Company or any Affiliate terminates for any
reason or for no reason, the option shall terminate on the earlier of the
Expiration Date or the date twelve (12) months following the date of
termination of all such service; PROVIDED, HOWEVER, that if such termination of
service is due to the optionee's death, the option shall terminate on the
earlier of the Expiration Date or eighteen (18) months following the date of
the optionee's death.

2.
<PAGE>

(b) The exercise price of each option shall be equal to one hundred
percent (100%) of the Fair Market Value of the stock (as such term is defined in
subsection 9(d)) subject to such option on the date such option is granted.

(i) Payment of the exercise price per share in cash at the time of
exercise;

(ii) Provided that at the time of the exercise the Company's common
stock is publicly traded and quoted regularly in THE WALL STREET JOURNAL,
payment by delivery of shares of common stock of the Company already owned by
the optionee, held for the period required to avoid a charge to the Company's
reported earnings, and owned free and clear of any liens, claims, encumbrances
or security interest, which common stock shall be valued at its Fair Market
Value on the date preceding the date of exercise; or

(iii) Payment pursuant to a program developed under Regulation T as
promulgated by the Federal Reserve Board which results in the receipt of cash
(or check) by the Company either prior to the issuance of shares of the
Company's common stock or pursuant to the terms of irrevocable instructions
issued by the optionee prior to the issuance of shares of the Company's common
stock.

(iv) Payment by a combination of the methods of payment specified in
subparagraph 6(c)(i) through 6(c)(iii) above.

(d) An option shall be transferable only to the extent specifically
provided in the option agreement; PROVIDED, HOWEVER, that if the option
agreement does not specifically provide for the transferability of an option,
then the option shall not be transferable except by will or by the laws of
descent and distribution, and shall be exercisable during the lifetime of the
person to whom the option is granted only by such person (or by his guardian or
legal representative) or transferee pursuant to such an order. Notwithstanding
the foregoing, the optionee may, by delivering written notice to the Company in
a form satisfactory to the Company, designate a third party who, in the event of
the death of the optionee, shall thereafter be entitled to exercise the option.

(e) The Initial Grant shall vest quarterly over the four (4)-year period
following the date of grant such that the entire Initial Grant shall become
exercisable on the fourth anniversary of the date of grant of the option,
provided that the optionee has, during the entire period prior to such vesting
installment date, continuously served as a Non-Employee Director or employee of
or consultant to the Company or any Affiliate of the Company, whereupon such
option shall become fully vested and exercisable in accordance with its terms
with respect to that portion of the shares represented by that installment.

(f) The Annual Grant shall vest quarterly over the one (1)-year period
following the date of grant such that the entire Annual Grant shall become
exercisable on the one (1)-year anniversary of the date of grant of the option,
provided that the optionee has, during the entire

3.
<PAGE>

period prior to such vesting installment date, continuously served as a
Non-Employee Director or employee of or consultant to the Company or any
Affiliate of the Company, whereupon such option shall become fully vested and
exercisable in accordance with its terms with respect to that portion of the
shares represented by that installment.

(g) The Company may require any optionee, or any person to whom an option
is transferred under subparagraph 6(d), as a condition of exercising any such
option: (i) to give written assurances satisfactory to the Company as to the
optionee's knowledge and experience in financial and business matters; and
(ii) to give written assurances satisfactory to the Company stating that such
person is acquiring the stock subject to the option for such person's own
account and not with any present intention of selling or otherwise distributing
the stock. These requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the shares upon the
exercise of the option has been registered under a then currently-effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), or (ii) as to any particular requirement, a determination is
made by counsel for the Company that such requirement need not be met in the
circumstances under the then applicable securities laws. The Company may
require any optionee to provide such other representations, written assurances
or information that the Company shall determine is necessary, desirable or
appropriate to comply with applicable securities laws as a condition of granting
an option to the optionee or permitting the optionee to exercise the option.
The Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the stock.

(h) Notwithstanding anything to the contrary contained herein, an option
may not be exercised unless the shares issuable upon exercise of such option are
then registered under the Securities Act or, if such shares are not then so
registered, the Company has determined that such exercise and issuance would be
exempt from the registration requirements of the Securities Act.

7. COVENANTS OF THE COMPANY.

(a) During the terms of the options granted under the Plan, the Company
shall keep available at all times the number of shares of stock required to
satisfy such options.

(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the options granted under the
Plan; PROVIDED HOWEVER, that this

4.
<PAGE>

undertaking shall not require the Company to register under the Securities Act
either the Plan, any option granted under the Plan, or any stock issued or
issuable pursuant to any such option. If, after reasonable efforts, the Company
is unable to obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance and sale
of stock under the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such options.

8. USE OF PROCEEDS FROM STOCK.

Proceeds from the sale of stock pursuant to options granted under the Plan
shall constitute general funds of the Company.

9. MISCELLANEOUS.

(a) Neither an optionee nor any person to whom an option is transferred
under subparagraph 6(d) shall be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to such option unless
and until such person has satisfied all requirements for exercise of the option
pursuant to its terms.

(b) Nothing in the Plan or in any instrument executed pursuant thereto
shall confer upon any Non-Employee Director any right to continue in the service
of the Company or any Affiliate in any capacity or shall affect any right of the
Company, its Board or shareholders or any Affiliate, to remove any Non-Employee
Director pursuant to the Company's Bylaws and the provisions of Delaware general
corporation law.

(c) In connection with each option made pursuant to the Plan, it shall be
a condition precedent to the Company's obligation to issue or transfer shares to
a Non-Employee Director, or to evidence the removal of any restrictions on
transfer, that such Non-Employee Director make arrangements satisfactory to the
Company to insure that the amount of any federal, state or local withholding tax
required to be withheld with respect to such sale or transfer, or such removal
or lapse, is made available to the Company for timely payment of such tax.

(d) As used in this Plan, "Fair Market Value" means, as of any date, the
value of the common stock of the Company determined as follows:

(i) If the common stock is listed on any established stock exchange
or a national market system, including without limitation the Nasdaq National
Market or The Nasdaq SmallCap, the Fair Market Value of a share of common stock
shall be the closing sales price for such stock (or the closing bid, if no sales
were reported) as quoted on such system or exchange (or the exchange with the
greatest volume of trading in common stock) on the last market trading day prior
to the day of determination, as reported in THE WALL STREET JOURNAL or such
other source as the Board deems reliable; or

(ii) In the absence of an established market for the common stock,
the Fair Market Value shall be determined in good faith by the Board.

5.
<PAGE>

10. ADJUSTMENTS UPON CHANGES IN STOCK.

(a) If any change is made in the stock subject to the Plan, or subject to
any option granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan and outstanding options will
be appropriately adjusted in the class(es) and maximum number of shares subject
to the Plan and the class(es) and number of shares and price per share of stock
subject to outstanding options. The Board shall make such adjustments, and the
determination of the Board shall be final, binding and conclusive. (The
conversion of any convertible securities of the Company shall not be treated as
a "transaction not involving the receipt of consideration by the Company.")

(b) In the event of: (1) a dissolution, liquidation or sale of
substantially all of the assets of the Company; (2) a merger or consolidation
in which the Company is not the surviving corporation; or (3) a reverse
merger in which the Company is the surviving corporation but the shares of
Common Stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise, then (i) any surviving corporation or acquiring
corporation shall assume any options outstanding under the Plan or shall
substitute similar options (including an option to acquire the same
consideration paid to the stockholders in the transaction described in this
subsection 6(b)) for those outstanding under the Plan, or (ii) in the event
any surviving corporation or acquiring corporation refuses to assume such
options or to substitute similar options for those outstanding under the
Plan, (A) with respect to options held by persons whose continuous service
has not terminated, the vesting of such options (and, if applicable, the time
during which such options may be exercised) shall be accelerated prior to
such event and the options terminated if not exercised (if applicable) after
such acceleration and at or prior to such event, and (B) with respect to any
other options outstanding under the Plan, such options shall be terminated if
not exercised (if applicable) prior to such event.

(c) In the event of the acquisition by any person, entity or group
within the meaning of Section 13(d) or 14(d) of the Exchange Act, or any
comparable successor provisions (excluding any employee benefit plan, or
related trust, sponsored or maintained by the Company or any Affiliate of the
Company) of the beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act, or comparable successor rule) of
securities of the Company representing at least fifty percent (50%) of the
combined voting power entitled to vote in the election of directors, then,
with respect to options held by persons whose continuous service has not
terminated, the vesting of such options (and, if applicable, the time during
which such options may be exercised) shall be accelerated immediately upon
the happening of such event.

11. AMENDMENT OF THE PLAN.

(a) The Board at any time, and from time to time, may amend the Plan
and/or some or all outstanding options granted under the Plan. However, except
as provided in paragraph 10 relating to adjustments upon changes in stock, no
amendment shall be effective unless approved by the shareholders of the Company
to the extent shareholder approval is necessary for the Plan to satisfy the
requirements of Rule 16b-3 under the Exchange Act or any Nasdaq or securities
exchange listing requirements.

(b) Rights and obligations under any option granted before any amendment
of the Plan shall not be impaired by such amendment unless (i) the Company
requests the consent of the person to whom the option was granted and (ii) such
person consents in writing.

6.
<PAGE>

12. TERMINATION OR SUSPENSION OF THE PLAN.

(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate ten (10) years after the date
adopted by the Board. No options may be granted under the Plan while the Plan
is suspended or after it is terminated.

(b) Suspension or termination of the Plan shall not impair rights and
obligations under any option granted while the Plan is in effect, except with
the consent of the person to whom the option was granted.

13. EFFECTIVE DATE OF PLAN; CONDITIONS OF EXERCISE.

(a) The Plan shall become effective on the same day that the Company's
initial public offering of shares of common stock becomes effective, subject to
the condition subsequent that the shareholders of the Company approve the Plan.

(b) No option granted under the Plan shall be exercised or exercisable
unless and until the condition of subparagraph 13(a) above has been met.

<PAGE>

SCIENTIFIC LEARNING CORPORATION
1998 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN

NONSTATUTORY STOCK OPTION

(INITIAL GRANT)

___________, Optionee:

On __________________, 199__, an option was automatically granted to you
(the "optionee") pursuant to the Scientific Learning Corporation (the "Company")
1998 Non-Employee Directors' Stock Option Plan (the "Plan") to purchase shares
of the Company's common stock ("Common Stock"). This option is NOT intended to
qualify and will NOT be treated as an "incentive stock option" within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code").

The grant hereunder is in connection with and in furtherance of the
Company's compensatory benefit plan for Non-Employee Directors (as defined in
the Plan).

The details of your option are as follows:

1. The total number of shares of Common Stock subject to this option is
twenty thousand (20,000).

2. The exercise price of this option is _________________________
($________) per share, such amount being equal to the Fair Market Value (as
defined in the Plan) of the Common Stock on the date of grant of this option.

3. Twenty-five percent of the shares subject to this option shall vest
every three (3) months over the four (4)-year period following the date of grant
such that the entire option shall become exercisable on the fourth (4th)
anniversary of the date of grant, provided that, during the entire period prior
to such vesting installment date, you have continuously served as a Non-Employee
Director of the Company or employee or member of the Board of Directors of or
consultant to the Company or any Affiliate of the Company. If your service as a
Non-Employee Director or employee or member of the Board of Directors of or
consultant to the Company or any Affiliate of the Company terminates for any
reason or for no reason, this option shall be exercisable only to the extent
vested on such termination date, and shall terminate to the extent not exercised
on the earlier of the Expiration Date (as defined below) or the date twelve
(12) months following the date of termination of all such service; PROVIDED,
HOWEVER, that if such termination of service is due to your death, this option
shall terminate on the earlier of the Expiration Date or eighteen (18) months
following the date of your death.

4. (a) You may exercise this option, to the extent specified above, by
delivering a notice of exercise (in a form designated by the Company) together
with the exercise price to the Secretary of the Company, or to such other person
as the Company may designate, during

1.
<PAGE>

regular business hours, together with such additional documents as the Company
may then require pursuant to Section 6 of the Plan. You may exercise this
option only for whole shares.

(b) You may elect to pay the exercise price under one of the
following alternatives:

(i) Payment in cash or check at the time of exercise;

(ii) Provided that at the time of the exercise the Common Stock
is publicly traded and quoted regularly in THE WALL STREET JOURNAL, payment by
delivery of shares of Common Stock already owned by you, held for the period
required to avoid a charge to the Company's reported earnings, and owned free
and clear of any liens, claims, encumbrances or security interest, which Common
Stock shall be valued at its Fair Market Value on the date preceding the date of
exercise;

(iii) Payment pursuant to a program developed under Regulation T
as promulgated by the Federal Reserve Board which results in the receipt of cash
(or check) by the Company either prior to the issuance of shares of the Common
Stock or pursuant to the terms of irrevocable instructions issued by you prior
to the issuance of shares of the Common Stock; or

(iv) Payment by a combination of the methods of payment
specified in subparagraphs (i) through (iii) above.

(c) By exercising this option you agree that the Company may require
you to enter an arrangement providing for the cash payment by you to the Company
of any tax-withholding obligation of the Company arising by reason of the
exercise of this option. Notwithstanding anything to the contrary contained
herein, you may not exercise this option unless the shares issuable upon
exercise of this option are then registered under the Securities Act of 1933, as
amended (the "Securities Act"), or, if such shares are not then so registered,
the Company has determined that such exercise and issuance would be exempt from
the registration requirements of the Securities Act.

5. This option is not transferable except (i) by will or by the laws of
descent and distribution, (ii) by written designation which takes effect upon
your death, (iii) by written instruction, in a form accepted by the Company, to
your spouse, children, stepchildren, or grandchildren (whether adopted or
natural), to a trust, family limited liability company or family partnership
created solely for the benefit of you and the foregoing persons, or (iv) to your
former spouse (if transfer is pursuant to a judicial decree dissolving your
marriage). During your life this Option is exercisable only by you or a
transferee satisfying the above conditions. The right of a transferee to
exercise the transferred portion of this Option after your termination of
employment with the Company shall terminate in accordance with your right of
exercise under Section 3 of this Option, and after your death under Section 3 of
this Option (treating the transferee as a person who acquired the right to
exercise this Option by bequest or inheritance. The terms of this Option shall
be binding upon the transferees, executors, administrators, heirs, successors,
and assigns of the Optionee. Notwithstanding the foregoing, by delivering
written notice to the Company, in a form satisfactory to the Company, you may
designate a third party who, in the event of your death, shall thereafter be
entitled to exercise this option.

2.
<PAGE>

6. The term of this option ("Expiration Date") is ten (10) years measured
from the grant date, subject, however, to earlier termination upon your
termination of service, as set forth in Section 6 of the Plan.

7. Any notices provided for in this option or the Plan shall be given in
writing and shall be deemed effectively given upon receipt or, in the case of
notices delivered by the Company to you, five (5) days after deposit in the
United States mail, postage prepaid, addressed to you at the address specified
below or at such other address as you hereafter designate by written notice to
the Company.

8. This option is subject to all the provisions of the Plan, a copy of
which is attached hereto, and its provisions are hereby made a part of this
option, including without limitation the provisions of Section 6 of the Plan
relating to option provisions, and is further subject to all interpretations,
amendments, rules and regulations which may from time to time be promulgated and
adopted pursuant to the Plan. In the event of any conflict between the
provisions of this option and those of the Plan, the provisions of the Plan
shall control.

9. Notwithstanding anything to the foregoing, this option shall NOT be
exercisable in whole or in part unless and until the Company's shareholders have
approved the Plan.

Dated the ____ day of _______, 19___.

Very truly yours,

SCIENTIFIC LEARNING CORPORATION

By:__________________________________
Duly authorized on behalf of the
Board of Directors

ATTACHMENT:

1998 Non-Employee Directors' Stock Option Plan

3.
<PAGE>

The Undersigned:

(c) Acknowledges receipt of the foregoing option and the attachment
referenced therein and understands that all rights and liabilities with respect
to this option are set forth in the option and the Plan; and

(d) Acknowledges that as of the date of grant of this option, it sets
forth the entire understanding between the undersigned optionee and the Company
and its Affiliates regarding the acquisition of Common Stock in the Company and
supersedes all prior oral and written agreements on that subject with the
exception of (i) the options and any other stock awards previously granted and
delivered to the undersigned under stock award plans of the Company and (ii) the
following agreements only:

NONE:________________________________

OTHER:_______________________________
_______________________________
_______________________________

___________________________________
Optionee

<PAGE>

SCIENTIFIC LEARNING CORPORATION
1998 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN

NONSTATUTORY STOCK OPTION
(ANNUAL GRANT)

______________________, Optionee:

On __________________, 199___, an option was automatically granted to you
(the "Optionee") pursuant to the Scientific Learning Corporation (the "Company")
1998 Non-Employee Directors' Stock Option Plan (the "Plan") to purchase shares
of the Company's common stock ("Common Stock"). This option is NOT intended to
qualify and will NOT be treated as an "incentive stock option" within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code").

The grant hereunder is in connection with and in furtherance of the
Company's compensatory benefit plan for Non-Employee Directors (as defined in
the Plan).

The details of your option are as follows:

1. The total number of shares of Common Stock subject to this option is
four thousand (4,000) shares.

3. Twenty-five percent (25%) of the shares subject to this option shall
vest every three (3) months over the one (1)-year period following the date of
grant such that the entire option shall become exercisable on the first (1st)
anniversary of the date of grant, provided that, during the entire period prior
to such vesting installment date, you have continuously served as a Non-Employee
Director or employee or member of the Board of Directors of or consultant to the
Company or any Affiliate of the Company. If your service as a Non-Employee
Director or employee or member of the Board of Directors of or consultant to the
Company or any Affiliate of the Company terminates for any reason or for no
reason, this option shall be exercisable only to the extent vested on such
termination date, and shall terminate to the extent not exercised on the earlier
of the Expiration Date (as defined below) or the date twelve (12) months
following the date of termination of all such service; PROVIDED, HOWEVER, that
if such termination of service is due to your death, this option shall terminate
on the earlier of the Expiration Date or eighteen (18) months following the date
of your death.

1.
<PAGE>

regular business hours, together with such additional documents as the Company
may then require pursuant to Section 6 of the Plan. You may exercise this
option only for whole shares.

(b) You may elect to pay the exercise price under one of the
following alternatives:

(i) Payment in cash or check at the time of exercise;

(iii) Payment pursuant to a program developed under Regulation T
as promulgated by the Federal Reserve Board which results in the receipt of cash
(or check) by the Company either prior to the issuance of shares of the Common
Stock or pursuant to the terms of irrevocable instructions issued by you prior
to the issuance of shares of the Common Stock; or

(iv) Payment by a combination of the methods of payment
specified in subparagraphs (i) through (iii) above.

2.
<PAGE>

notice to the Company, in a form satisfactory to the Company, you may designate
a third party who, in the event of your death, shall thereafter be entitled to
exercise this option.

Notwithstanding anything to the foregoing, this option shall NOT be
exercisable in whole or in part unless and until the Company's shareholders have
approved the Plan.

Dated the____day of___________, 19___.

Very truly yours,

SCIENTIFIC LEARNING CORPORATION

By:
------------------------------------
Duly authorized on behalf of the
Board of Directors

ATTACHMENT:

1998 Non-Employee Directors' Stock Option Plan

3.
<PAGE>

The Undersigned:

(a) Acknowledges receipt of the foregoing option and the attachment
referenced therein and understands that all rights and liabilities with respect
to this option are set forth in the option and the Plan; and

(b) Acknowledges that as of the date of grant of this option, it sets
forth the entire understanding between the undersigned optionee and the Company
and its Affiliates regarding the acquisition of Common Stock in the Company and
supersedes all prior oral and written agreements on that subject with the
exception of (i) the options and any other stock awards previously granted and
delivered to the undersigned under stock award plans of the Company and (ii) the
following agreements only:

NONE:
---------------------------------

OTHER:
---------------------------------
---------------------------------
---------------------------------

---------------------------------------
Optionee

<PAGE>

SCIENTIFIC LEARNING PRINCIPLES CORPORATION
ONE KEARNY STREET, SUITE 501
SAN FRANCISCO, CA 94108
(415) 296-1470

October 31, 1996

Sheryle Bolton
892 Route 35
Second Floor
Cross River, NY 10518-0159

RE: OFFER OF EMPLOYMENT

Dear Sheryle:

On behalf of the Board of Directors, I am pleased to offer you the position of
Chief Executive Officer of Scientific Learning Principles Corporation (the
"Company"). This letter sets forth the terms of our offer of employment to you.

As Chief Executive Officer, you will be responsible for the overall management
and direction of the Company and implementing the decisions of the Board of
Directors. You will report directly to the Board of Directors.

You have advised the Company that you will continue to serve as a member of the
Board of Directors at Scudder, Stephens & Clark and that you will be winding up
certain independent consulting activities over the next six months. The Company
consents to such service and activities.

Your compensation package will include the following elements:

- - You will receive an annual base salary of $205,000, payable in installments
on the Company's standard pay days. This salary will be in effect through
December 31, 1997. Thereafter, base compensation will be reviewed and any
increases established annually by the Company's Board of Directors.

- - You will be granted an option to purchase up to 1,000,000 shares of common
stock of the Company under the Company's Stock Option Plan at the current
fair market value of the common stock (most recently ten cents per share).
The shares will be subject to vesting over four years, with an initial
one-year cliff (at which time 25% will vest, with the remainder vesting
monthly over the following 36 months).

- - The Company will also pay you a one-time lump sum payment of $60,000 to
assist with your relocation expense.

<PAGE>

Sheryle Bolton
October 31, 1996
Page 2

In addition, you will be eligible for the Company's standard benefits for
employees, as currently arranged through the Company's administrator TriNet
Employment Group. The Company may modify its standard benefits from time to
time as it deems necessary, which would also modify the benefits available to
you.

We anticipate you will be elected to the Company's Board of Directors at its
next meeting, scheduled for November 13, 1996 in New York City. Dr. Merzenich
will resign as Chief Executive Officer when you begin work and he will assume
the position of Chief Scientific Officer.

To further assist you with your transition, if you so request, the Company will
loan you $30,000 for a period of 90 days. To minimize compliance requirements
under California corporate law, this loan would need to be made prior to your
appointment as an officer and director. A form of promissory note is enclosed.
If you wish to make this bridge loan arrangement, please return a signed copy of
the note along with your countersigned copy of this letter.

In the event that your employment is terminated by the Company without cause
prior to November 1, 1998, you will receive your base salary on regularly
scheduled pay days for the twelve (12) months following such termination;
provided that such amount shall be reduced by any compensation you are then
receiving from other employment as an executive. The Company's obligation to
make the payments following termination specified in this paragraph are subject
to your execution and delivery of a full and complete release of the Company and
its officers, directors, shareholders and agents, substantially in the form
attached, in consideration of such severance arrangements.

As used herein, "cause" shall mean (i) indictment or conviction of any felony or
of any crime involving dishonesty, (ii) participation in any fraud or crime
against the Company, (iii) intentional damage to any substantial or valuable
property of the Company or to the business reputation of the Company,
(iv) repeated failure to comply with lawful directives of the Board of Directors
following notice of such failure, and, where appropriate, an opportunity to
cure, or (v) any alcohol or illegal drug dependence or abuse. A diminution in
your position or your pay may be considered a "termination" for purposes of this
agreement.

Naturally, as an employee, you will be expected to abide by Company rules and
regulations. In particular, you will be required to sign an acknowledgment that
you have read and understand the Company rules of conduct which will be included
in a handbook which the Company will soon complete and distribute. You will be
expected to sign and comply with the enclosed proprietary information and
non-disclosure agreement which requires, among other provisions, the assignment
of patent rights to any invention made during your employment at the Company and
non-disclosure of proprietary information.

<PAGE>

Sheryle Bolton
October 31, 1996
Page 3

As an employee, you may terminate employment at any time and for any reason
whatsoever with notice to the Company. We request that, in the event of
resignation, you give the Company at least two weeks notice. Similarly, the
Company may terminate your employment at any time and for any reason whatsoever,
with or without cause or advance notice. Furthermore, this mutual termination
of employment arrangement supersedes all our prior written and oral
communication with you and can only be modified by written agreement signed by
you and the Company.

As we have discussed, we would expect you to begin full time work on November 1,
1996. I have enjoyed our discussions over recent weeks very much. Both I and
the other members of the Board of Directors have been impressed by your
accomplishments and by your fine reputation in the community. I personally look
forward to working with you and to the success of our company.

Please countersign the enclosed copy of this letter and return it to me to
indicate your agreement to your employment at the Company on the terms set forth
above.

Sincerely,

SCIENTIFIC LEARNING PRINCIPLES CORPORATION

By:/s/ Michael M. Merzenich
----------------------------
Name/Title:President
--------------------

enclosures

ACCEPTED AND AGREED:

/s/ Sheryle J. Bolton
- ----------------------------
Sheryle J. Bolton

<PAGE>

CONSULTING AGREEMENT

THIS CONSULTING AGREEMENT (the "Agreement") is entered into as of this 20th
day of September, 1996, by and between SCIENTIFIC LEARNING PRINCIPLES
CORPORATION, a California corporation (the "Company"), and MICHAEL M. MERZENICH,
PH.D. (the "Consultant") to memorialize certain arrangements previously made
between the parties and to record their understanding of their business
arrangements.

RECITALS

WHEREAS, the Company proposes to develop products based on new technology
relating to language learning impairments;

WHEREAS, Consultant is a leading scientist in the forefront of developing
technology to assess and treat language learning impairment; and

WHEREAS, the Company and the Consultant desire to enter into a consulting
arrangement whereby the Company shall benefit from the Consultant's unique
knowledge and experience;

NOW, THEREFORE, in consideration of the mutual undertakings set forth
herein, the parties hereby agree as follows.

AGREEMENT

1. SCOPE. The purpose of this Agreement is to provide for the
performance by the Consultant of research, investigation and consultation on
behalf of the Company to advance and enable the Company to commercially exploit
research related to the inventions described in Pending U.S. Patent Application
Serial No. 08/351,803 entitled "Method and Device for Enhancing the Recognition
of Speech Among Speech Impaired Individuals," filed December 8, 1994 by Drs.
Merzenich, Jenkins, Schreiner, Tallal and Miller and assigned to the Regents of
the University of California and Rutgers-the State University of New Jersey (the
"Patent"), as well as other areas as shall from time to time be mutually agreed
upon by the parties hereto ("Field of Activity"). The Consultant's specific
consulting assignments within the Field of Activity and such other general
consulting services as the Company may reasonably request ("Consulting
Activities") shall be determined from time to time by the Chief Executive
Officer of the Company or by any other officer empowered by the Company's Board
of Directors to determine the Consultant's assignments.

2. TERM. This Agreement shall be deemed effective as of January 31, 1996
(the "Effective Date") and shall terminate on December 31, 2001, unless earlier
terminated pursuant to Section 19, below, or unless extended by mutual written
consent of the parties hereto.

3. TIME COMMITMENT.

(a) The parties acknowledge that during the period from the Effective
Date through March 25, 1996 the Consultant devoted twenty percent (20%) of the
Consultant's

<PAGE>

professional time available under Consultant's employment arrangements with the
University of California, San Francisco ("UCSF") to Consulting Activities.

(b) The Consultant has advised the Company that the Consultant has
taken an in residence sabbatical at UCSF for a one-year period, which commenced
on March 26, 1996. For the period from March 26, 1996 through March 25, 1997,
the Consultant agrees to devote an aggregate of one hundred percent (100%) of
the Consultant's total professional time available under Consultant's sabbatical
leave, other than time engaged in Permitted Sabbatical Activities (defined
below), to Consulting Activities. "Permitted Sabbatical Activities" means
administrative activities, student and research fellow advising activities,
collaborative research activities, special educational and training activities,
grant supervision activities (for grants outside the Field of Activity) at UCSF
and lecturing activities, all of which activities shall not, on average, exceed
thirty-five (35) hours per month.

(c) The Consultant has advised the Company that the Consultant plans
to seek approval for a leave of absence from UCSF for a one-year period,
commencing on March 26, 1997. For the period from March 26, 1997 through March
25, 1998, the Consultant agrees to devote an aggregate of one hundred percent
(100%) of the Consultant's total professional time available under Consultant's
sabbatical leave, other than time engaged in Permitted Leave Activities (defined
below), to Consulting Activities. "Permitted Leave Activities" means
administrative activities, student and research fellow advising activities,
collaborative research activities, special educational and training activities,
grant supervision activities (for grants outside the Field of Activity) at UCSF
and lecturing activities, all of which activities shall not, on average, exceed
thirty-five (35) hours per month.

(d) For the period commencing March 26, 1998 through December 31,
2001, the Consultant agrees to devote an aggregate of up to twenty percent (20%)
of the Consultant's total professional time to Consulting Activities. On or
prior to July 1, 1997, the Company shall notify the Consultant as to the amount
of professional time the Company requires the Consultant to reserve for
Consulting Activities for the period from March 26, 1998 through December 31,
1998 (the "Stub Period"). On or prior to each subsequent July first, the
Company shall notify the Consultant as to the amount of professional time the
Company requires the Consultant to reserve for Consulting Activities for the
next calendar year during the term of this Agreement. In each such case, the
Company shall notify the Consultant that it requires (a) twenty percent (20%) of
the Consultant's professional time, in which case the Consultant shall reserve
an average of one day per week for Consulting Activities on behalf of the
Company, (b) ten percent (10%) of the Consultant's professional time, in which
case the Consultant shall reserve an average of one-half day per week for
Consulting Activities on behalf of the Company, or (c) less than ten percent
(10%) of the Consultant's professional time, in which case the Consultant shall
reserve time at the Consultant's own discretion. Any such notice may be
hereinafter referred to as "Anticipated Request."

(e) When Consultant is engaged in less than full-time work on behalf
of the Company, as described in paragraphs 3(a) and (d), the parties acknowledge
that requests for the Consultant to engage in Consulting Activities shall be of
sufficient flexibility as to allow for reasonable accommodation of the
Consultant's personal and professional schedules.

2
<PAGE>

4. COMPENSATION.

(a) The parties acknowledge that for the period from the Effective
Date through March 25, 1996, the Consultant shall receive no compensation from
the Company.

(b) Pursuant to the policies of UCSF, for the period of Consultant's
in residence sabbatical leave from March 26, 1996 through March 25, 1997, the
Consultant shall not receive any compensation from the Company; however, the
Company shall make the payments described in Section 5 to UCSF and shall assume
liability for the reimbursements described in Section 5.

(c) For the period commencing March 26, 1997 through March 25, 1998,
during the Consultant's leave of absence from UCSF, the Consultant shall be paid
$11,000 per month.

(d) Pursuant to paragraph 3(d) above, the Company shall notify the
Consultant of the level of services requested for the Stub Period and subsequent
calendar years of this Agreement no later than the preceding July first. The
Consultant's compensation shall be set based upon the level of the Anticipated
Requests and the Company shall pay the Consultant consulting fees as follows:
(a) if Anticipated Requests for the period is twenty percent (20%) of the
Consultant's total professional time, then the Company agrees to pay the
Consultant an amount per year equal to the product of fifty-two (52) multiplied
by the "Daily Rate" (as defined below); (b) if Anticipated Requests for the
period is ten percent (10%) of the Consultant's total professional time, then
the Company agrees to pay the Consultant the greater of (i) an amount per year
equal to the product of twenty-six (26) multiplied by the Daily Rate or (ii) an
amount equal to the product of the Daily Rate multiplied by the number of days
worked at the request of the Company; and (c) if the Anticipated Request is less
than ten percent (10%) of the Consultant's total professional time, then the
Company agrees to pay the Consultant an amount equal to the Daily Rate
multiplied by the number of days worked at the request of the Company. For
purposes of the calculations described in the preceding sentence, the "Daily
Rate" shall be as follows:

<TABLE>
<CAPTION>
DAILY RATE COMMENCING ENDING
<S> <C> <C>
$500 3/26/98 12/31/98
$550 1/1/99 12/31/99
$600 1/1/00 12/31/00
$650 1/1/01 12/31/01.
</TABLE>

(e) Within thirty days following the end of any fiscal quarter in
which the Company reports net income exceeding $1,000,000 and the Company is
paying the Consultant based on the Daily Rate, the Company shall pay to the
Consultant an additional amount equal to fifty percent of the amount paid to the
Consultant during such quarter pursuant to paragraph 4(d).

(f) The Consultant acknowledges that a portion of such consulting
fees may be withheld by the Company and paid to taxing authorities, if and to
the extent that the Company determines it is obligated to do so under applicable
tax laws. Compensation shall be paid within

3
<PAGE>

30 days of the rendering of services, and may be prorated by the Company to
coincide with the Company's regular pay days.

5. REIMBURSEMENTS. The Company agrees that it shall reimburse UCSF for
the compensation and benefit expenses incurred by UCSF during the Consultant's
in residence sabbatical in the event that the Consultant does not return to
active employment at UCSF and UCSF seeks reimbursement of such amounts under
applicable UCSF policy. It is agreed that the Company's reimbursement
obligation shall not exceed $150,000. In addition, the Company acknowledges
that it has paid to UCSF $1,989 per month during the Consultant's in residence
sabbatical to reimburse UCSF for the Consultant's non-state funded compensation
and the Company agrees to continue to pay such amount during the Consultant's in
residence sabbatical, pursuant to UCSF policy.

6. FRINGE BENEFITS. To the extent the Consultant is not eligible for
similar or superior benefits through the Consultant's relationship with UCSF,
the Company agrees to provide the Consultant with at least the same non-wage
employment benefits as the Company routinely offers to its full-time employees.

7. EXPENSES. The Consultant shall be entitled to reimbursement by the
Company for all reasonable expenses the Consultant incurs in the conduct of
activities requested by the Company related to the Field of Activity.

8. RIGHTS OF FIRST REFUSAL. The Consultant agrees that prior to making
any requests to third parties for grants or sponsored research to support work
within the Field of Activity, the Consultant will present the Consultant's
proposed project to the Company and offer the Company the opportunity to support
such work in exchange for rights in resulting patents. If the Company declines
such opportunity, the Consultant may obtain support from other parties for such
work.

9. EXTERNAL CONSULTING. Notwithstanding any other provision of this
Agreement, prior to entering into a consulting arrangement with any other entity
(other than those existing commitments set forth on Appendix I ("External
Consulting Activities"), the Consultant agrees to notify the Company as to the
identity of such entity and the amount of the Consultant's professional time
proposed to be devoted to such External Consulting Activities. The Consultant
further agrees not to engage in External Consulting Activities if the Company
promptly notifies the Consultant that such proposed activities are with an
entity the Company deems to be a competitor with the Company or are activities
which the Company reasonably believes will conflict with the Company's business
objectives. During any period in which the Consultant's time commitment to the
Company pursuant to Section 3 above is twenty percent (20%) or more of
Consultant's professional time, the Consultant agrees not to engage in any
External Consulting Activities, without the prior approval of the Company (not
to be unreasonably withheld).

10. CONSENTS. The Consultant agrees to obtain all consents and approvals
from UCSF necessary to undertake and carry out the Consultant's obligations
under this Agreement. The parties acknowledge that this Agreement is intended
to comply with the policies of such institution in effect on the date hereof.

4
<PAGE>

11. PERFORMANCE OF OBLIGATIONS. The Consultant represents and warrants
that the Consultant will perform the Consulting Activities obligations under
this Agreement (a) solely on the Consultant's own time, (b) solely with supplies
and equipment provided by the Company, as set forth in Section 14 below, and
(c) at such locations, excluding in all cases the campuses of UCSF (unless
Company sponsored research is approved for conduct at UCSF), as the Company and
the Consultant may mutually agree.

12. NO CONFLICTS. The Consultant represents and warrants that the
Consultant's performance of this Agreement does not conflict with any written or
oral agreement the Consultant has entered.

13. REPORTS. The Consultant shall keep the Company fully informed of the
Consultant's activities under this Agreement and, at the request of the Company,
shall discuss all matters relating to the conduct of Consultant's activities
hereunder with personnel designated by the Company. If requested by the
Company, the Consultant shall provide the Company with written reports
describing the Consultant's activities under this Agreement.

14. SUPPLIES. The Company shall provide the Consultant with premises,
supplies and equipment as mutually agreed from time to time, at which location
and with such equipment and supplies the Consultant shall perform the Consulting
Activities.

15. PROPERTY RIGHTS. The Consultant represents and warrants that except
as set forth on Appendix II and except for the inventions covered by the Patent,
the Consultant has not made patentable inventions within the Field of Activity
prior to the date of this Agreement. The Consultant agrees to assign to the
Company any and all right, title and interest in or to any and all inventions,
developments, designs, improvements, trade secrets, formulae, processes,
devices, instruments, techniques, know-how and data (the "Inventions," or,
individually, "Invention") whether or not patentable or registrable under
copyright or similar statutes, made or conceived or reduced to practice or
learned by the Consultant, either alone or jointly with others, during the term
of this Agreement and which result from Consulting Activities. In the event the
Consultant makes an Invention that is within the Field of Activity and is within
the scope of the Company's business plans while the Consultant is performing
work unrelated to the Consulting Activities, if the Company so requests, the
Consultant shall use reasonable best efforts to cause the Invention to be
assigned to the Company (subject to limitations on Consultant's efforts under
applicable UCSF policy), and if the Company so requests, the Consultant agrees
to assign to the Company any income due to the Consultant from such Invention.

5
<PAGE>

Agreement, and the Company shall compensate the Consultant at a reasonable rate
after such expiration or termination for Consultant's time and expenses related
to such requests for assistance by the Company. In the event the Company is
unable, after reasonable effort, to secure the Consultant's signature on any
document needed to apply for or prosecute any patent, copyright, or other right
or protection relating to any Invention of the Company, the Consultant hereby
irrevocably designates and appoints the Company and its duly authorized agents
as agent and attorney in fact, to act for and in the Consultant's behalf to
execute, verify and file any such applications and to do all other lawfully
permitted acts to further the prosecution and issuance of patents, copyrights,
and other rights and protections thereon with the same legal force and effect as
if executed by the Consultant.

17. CONFIDENTIAL INFORMATION. The term "Confidential Information" shall
mean all information the Company desires, for business reasons, to hold in
confidence. By way of illustration but not limitation, Confidential Information
includes (a) Inventions, as defined in Section 15 above and (b) plans for
research, development, new products, marketing and selling; information
regarding business plans, budgets and unpublished financial statements;
licenses; prices and costs; information concerning suppliers and customers; and
information regarding the skills and compensation of employees of or other
consultants to the Company. The Consultant agrees to hold all such Confidential
Information in strictest confidence and not to disclose or use any of the
Company's Confidential Information except as such use or disclosure may be
required in connection with work for the Company, unless an officer of the
Company expressly authorizes such disclosure or use. The Consultant further
agrees to assign to the Company any rights the Consultant has or may acquire in
such Confidential Information to the Company and agrees that all Confidential
Information shall be the sole property of the Company and its assigns.

18. PUBLICATION. The Company agrees not to interfere with, and in
principle supports, the Consultant's academic research and publication of
scientific findings. The Consultant agrees to submit any material related to
the Field of Activity to the Company for its review before publication and the
Consultant agrees not to make public disclosures relating to the Field of
Activity which the Company believes will have an adverse effect on the business
of the Company without the Company's prior consent.

19. DEFAULT. In the event of a material default or material breach of any
provision of this Agreement by either party, the non-defaulting party shall give
written notice of such default to the defaulting party pursuant to Section 21,
below. If the default or breach is not capable of a cure, or if capable of a
cure, is not cured within 60 days of the date of said notice, the non-defaulting
party shall have the right to terminate this Agreement, which right shall not be
such party's exclusive remedy.

6
<PAGE>

premises furnished by the Company to the Consultant under this Agreement, be
delivered to the Company (together with any reproductions thereof) upon
expiration or termination of this Agreement. Upon such expiration or
termination, the Consultant shall not retain or dispose of any of the materials
(or reproductions thereof) covered hereunder, except by delivery to the Company.

21. NOTICE. All notices hereunder shall be in writing and shall be
delivered personally, by overnight delivery service, by fax or by first class
mail sent postage prepaid to the parties hereto at their respective addresses as
set forth on the signature page hereof. Either party may change its address by
written notice. Any notice hereunder shall be deemed delivered upon receipt,
which in the case of notice sent by overnight courier or by fax shall be deemed
to be the earlier of receipt or the next business day and which in the case of
the mail shall be deemed to be the earlier of receipt or five business days
after deposit in the US mail, postage prepaid. A business day is deemed to be
any day other than a Saturday, Sunday or federal holiday.

22. WAIVER. Failure on any occasion by either party to enforce any
provision of this Agreement shall not prevent its enforcement by such party on
any other occasion.

23. ENTIRE AGREEMENT. This Agreement constitutes the sole agreement of
the parties hereto relating to the subject matter hereof and supersedes all
prior agreements with respect to the subject matter hereof. This Agreement
shall not be amended, altered or modified other than by written agreement
between the parties hereto.

24. PREVIOUS INVENTIONS. The parties hereto acknowledge that the Company
will separately negotiate with the Regents of the University of California and
Rutgers to receive an exclusive license under all foreign and domestic rights
stemming from the Patent. The Company acknowledges that the Consultant shall
receive a portion of whatever sums are paid to the UCSF in respect of those
patent rights.

25. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of California, without giving effect to the principles of conflict of laws
thereof.

7
<PAGE>

IN WITNESS WHEREOF, the parties have executed this Consulting Agreement as
of the date first above set forth.

SCIENTIFIC LEARNING PRINCIPLES CORPORATION

By: /s/ Carleton A. Hostrom
----------------------------------------
Carleton A. Holstrom
Chief Financial Officer

Address: One Kearny Street
Suite 501
San Francisco, CA 94108
Facsimile: (415) 296-1481
Telephone: (415) 296-1470

CONSULTANT

/s/ Michael M. Merzenich
-------------------------------------------
Michael M. Merzenich, Ph.D

Address: 20 Hillpoint
San Francisco, CA 94117
Facsimile: (415) 476-1941
Telephone: (415) 665-5448

8
<PAGE>

APPENDIX I

Pre-existing consulting commitments are as follows:

COMPLETED BY DR. MERZENICH

I have terminated all other commercial consulting agreements.
Non-commercial agreements will be limited to: (i) U.S. and foreign government
research and education agencies, (ii) public and private universities and (iii)
non-commercial research centers and foundations.

9
<PAGE>

APPENDIX II

Consultant has conducted research at UCSF unrelated to Consulting Activities
that has led or may lead to other inventions that may be "related to" the
Patent, which may or may not be of interest to the Company and which may or may
not be covered by the Patent.

10
<PAGE>

MODIFICATION TO CONSULTING AGREEMENT

This Agreement ("Modification") modifies the Consulting Agreement ("Original
Agreement") dated September 20, 1996, between Scientific Learning Corporation
("Company") of Berkeley, California and Michael M. Merzenich, Ph.D.
("Consultant"). To the extent that there are any differences between the
Modification and the Original Agreement, the term(s) of the Modification
supercedes the corresponding term(s) of the Original Agreement. Accordingly,
Company and Consultant agree that:

1) As of December 15, 1997, Consultant has returned officially to the
University of California at San Francisco ("UCSF") as a full-time resident
faculty member.

2) Between December 15, 1997 and December 31, 1998, Consultant shall devote
20% of Consultant's total professional time on consulting activities for
the Company.

3) In consideration of the consulting activities provided by Consultant,
Company shall pay Consultant consulting fees of $2,167 per month for the
twelve months beginning January 1998 and ending December 1998. In
addition, Company shall pay Consultant a fee of $1,084 for services
rendered during the period of December 15, 1997 through December 31, 1997.

4) Company shall reimburse Consultant for reasonable and customary expenses
that Consultant incurs in connection with Company's business. Such
expenses are subject to the Company's current expense/purchase approval
policies. For example, all business travel must be approved in advance by
either the Chief Executive Officer or the Chief Financial Officer or their
designees.

5) Company shall coordinate with Consultant as needed with respect to
intellectual property matters that may arise with UCSF.

6) Consultant is responsible for ensuring that consulting for Company under
both the Original Agreement and this Modification is consistent with the
current policies of UCSF such as UCSF's conflict of interest policy.

Accepted and agreed by:

SCIENTIFIC LEARNING CORPORATION CONSULTANT

/s/ Frank Mattson /s/ Michael M. Merzenich
- --------------------------------- ---------------------------------
Authorized Signature Michael M. Merzenich, Ph. D.

Frank Mattson January 19, 1998
- --------------------------------- ---------------------------------
Printed Name Date

Chief Financial Officer
- ---------------------------------
Title

January 15, 1998
- ---------------------------------
Date

<PAGE>
EXHIBIT 10.12

CONSULTING AGREEMENT

THIS CONSULTING AGREEMENT (the "Agreement") is entered into as of
this 19th day of September, 1996, by and between SCIENTIFIC LEARNING PRINCIPLES
CORPORATION, a California corporation (the "Company"), and PAULA A. TALLAL,
PH.D. (the "Consultant") to memorialize certain arrangements previously made
between the parties and to record their understanding of their business
arrangements.

RECITALS

WHEREAS, the Company proposes to develop products based on new technology
relating to language learning impairments;

WHEREAS, Consultant is a leading scientist in the forefront of developing
technology to assess and treat language learning impairment; and

WHEREAS, the Company and the Consultant desire to enter into a consulting
arrangement whereby the Company shall benefit from the Consultant's unique
knowledge and experience;

NOW, THEREFORE, in consideration of the mutual undertakings set forth
herein, the parties hereby agree as follows.

AGREEMENT

3. TIME COMMITMENT.

(a) The parties acknowledge that during the period from the Effective
Date through May 31, 1996 the Consultant devoted twenty percent (20%) of the
Consultant's

<PAGE>

professional time available under Consultant's employment arrangements with
Rutgers-the State University of New Jersey ("Rutgers") to Consulting Activities.

(b) The parties acknowledge that during the period from June 1, 1996
through August 31, 1996, the Consultant devoted one hundred percent (100%) of
the Consultant's professional time to Consulting Activities.

(c) During the period from September 1, 1996 through December 31,
1996, the Consultant agrees to devote an aggregate of one (1) day per week of
the Consultant's total professional time available under Consultant's employment
arrangements with Rutgers-the State University of New Jersey ("Rutgers") to
Consulting Activities.

(d) The Consultant has advised the Company that the Consultant has
requested and received permission from Rutgers for an off campus sabbatical for
a period of one year commencing January 1, 1997. For the period from January 1,
1997 through December 31, 1997, the Consultant agrees to devote an aggregate of
100 percent of the Consultant's total professional time available under
Consultant's sabbatical leave, other than time engaged in Permitted Sabbatical
Activities (defined below), to Consulting Activities. "Permitted Sabbatical
Activities" means administrative activities, student advising activities,
scientific writing, grant supervision activities (for grants outside the Field
of Activity) at Rutgers, and lecturing activities, all of which activities shall
not exceed, on average, five (5) days per month.

(e) For the period commencing January 1, 1998 through September 30,
2001, the Consultant agrees to devote an aggregate of up to one day per week on
Consulting Activities. On or prior to July 1, 1997, the Company shall notify
the Consultant as to the amount of professional time the Company requires the
Consultant to reserve for Consulting Activities for the period from March 26,
1998 through December 31, 1998. On or prior to each successive July first, the
Company shall notify the Consultant as to the amount of professional time the
Company requires the Consultant to reserve for Consulting Activities for the
next calendar year during the term of this Agreement. The Company shall notify
the Consultant that it requires (a) one day per week of the Consultant's
professional time, in which case the Consultant shall reserve an average of one
day per week for Consulting Activities on behalf of the Company, (b) one-half
day per week of the Consultant's professional time, in which case the Consultant
shall reserve an average of one-half day per week for Consulting Activities on
behalf of the Company, or (c) less than one-half day per week of the
Consultant's professional time, in which case the Consultant shall reserve time
at the Consultant's own discretion. Any such notice may be hereinafter referred
to as "Anticipated Request."

(f) When Consultant is engaged in less than full-time work on behalf
of the Company, as described in paragraphs 3(a), (c) and (e), the parties
acknowledge that requests for the Consultant to engage in Consulting Activities
shall be of sufficient flexibility as to allow for reasonable accommodation of
the Consultant's personal and professional schedules.

4. COMPENSATION.

(a) The parties acknowledge that for the period from the Effective
Date through May 31, 1996, the Consultant shall receive no compensation from the
Company.

2
<PAGE>

(b) The parties acknowledge that for the period from June 1, 1996
through August 31, 1996, the Consultant received $44,629 as compensation from
the Company.

(c) For the period from September 1, 1996 through December 31, 1996,
the Consultant shall be paid $500 per day worked at the request of the Company
and shall work one (1) day per week for the Company.

(d) For the period commencing January 1, 1997 through December 31,
1997, during the Consultant's off campus sabbatical leave from Rutgers, pursuant
to Rutgers policy the Consultant shall be paid eighty percent (80%) salary by
Rutgers and an additional $2,976 per month by the Company; provided, however,
that for the period from June 1, 1997 through August 31, 1997 the Company shall
pay the Consultant $44,629 in lieu of the monthly fee.

(e) Pursuant to paragraph 3(e) above, the Company shall notify the
Consultant of the level of services requested for the subsequent calendar years
of this Agreement no later than the preceding July first. The Consultant's
compensation shall be set based upon the level of the Anticipated Requests and
the Company shall pay the Consultant consulting fees as follows: (a) if
Anticipated Requests for the period is twenty percent (20%) of the Consultant's
total professional time, then the Company agrees to pay the Consultant an amount
per year equal to the product of fifty-two (52) multiplied by the "Daily Rate"
(as defined below); (b) if Anticipated Requests for the period is ten percent
(10%) of the Consultant's total professional time, then the Company agrees to
pay the Consultant the greater of (i) an amount per year equal to the product
of twenty-six (26) multiplied by the Daily Rate or (ii) an amount equal to the
product of the Daily Rate multiplied by the number of days worked at the request
of the Company; and (c) if the Anticipated Request is less than one-half day per
week of the Consultant's total professional time, then the Company agrees to pay
the Consultant an amount equal to the Daily Rate multiplied by the number of
days worked at the request of the Company. For purposes of the calculations
described in the preceding sentence, the "Daily Rate" shall be as follows:

<TABLE>
<CAPTION>
DAILY RATE COMMENCING ENDING
<S> <C> <C>
$500 1/1/98 12/31/98
$550 1/1/99 12/31/99
$600 1/1/00 12/31/00
$650 1/1/01 12/31/01
</TABLE>

(f) Within thirty days following the end of any fiscal quarter in
which the Company reports net income exceeding $1,000,000, and the Company is
paying the Consultant based on the Daily Rate, the Company shall pay to the
Consultant an additional amount equal to fifty percent of the amount paid to the
Consultant during such quarter pursuant to paragraph 4(e).

(g) The Consultant acknowledges that a portion of such consulting
fees may be withheld by the Company and paid to taxing authorities, if and to
the extent that the Company determines it is obligated to do so under applicable
tax laws. Compensation shall be paid within 30 days of the rendering of
services, and may be prorated by the Company to coincide with the Company's
regular pay days.

3
<PAGE>

5. REIMBURSEMENTS. The Company agrees that it will reimburse Rutgers for
the compensation and benefit expenses incurred by Rutgers during the
Consultant's off campus sabbatical in the event that the Consultant does not
return to active employment at Rutgers and Rutgers seeks reimbursement of such
amounts under applicable Rutgers policy. It is agreed that the Company's
reimbursement obligation shall not exceed $200,000.

6. FRINGE BENEFITS. To the extent the Consultant is not eligible for
similar or superior benefits through the Consultant's relationship with Rutgers,
the Company agrees to provide the Consultant with at least the same non-wage
employment benefits as the Company routinely offers to its full-time employees.

9. EXTERNAL CONSULTING. Notwithstanding any other provision of this
Agreement, prior to entering into a consulting arrangement with any other entity
(other than those existing commitments set forth on Appendix I ("External
Consulting Activities"), the Consultant agrees to notify the Company as to the
identity of such entity and the amount of the Consultant's professional time
proposed to be devoted to such External Consulting Activities. The Consultant
further agrees not to engage in External Consulting Activities if the Company
promptly notifies the Consultant that such proposed activities are with an
entity the Company deems to be a competitor with the Company or are activities
which the Company reasonably believes will conflict with the Company's business
objectives. During any period in which the Consultant's time commitment to the
Company pursuant to Section 3 above is one day or more per week, the Consultant
agrees not to engage in any External Consulting Activities, without the prior
approval of the Company (not to be unreasonably withheld).

10. CONSENTS. The Consultant agrees to obtain all consents and approvals
from Rutgers necessary to undertake and carry out the Consultant's obligations
under this Agreement. The parties acknowledge that this Agreement is intended
to comply with the policies of such institution in effect on the date hereof.

11. PERFORMANCE OF OBLIGATIONS. The Consultant represents and warrants
that the Consultant will perform the Consulting Activities obligations under
this Agreement (a) solely on the Consultant's own time, (b) solely with supplies
and equipment provided by the Company, as set forth in Section 14 below, and
(c) at such locations, excluding in all cases the campuses of Rutgers (unless
Company sponsored research is approved for conduct at Rutgers), as the Company
and the Consultant may mutually agree.

4
<PAGE>

12. NO CONFLICTS. The Consultant represents and warrants that the
Consultant's performance of this Agreement does not conflict with any written or
oral agreement the Consultant has entered.

15. PROPERTY RIGHTS. The Consultant represents and warrants that, except
for the inventions covered by the Patent, the Consultant has not made patentable
inventions within the Field of Activity prior to the date of this Agreement.
The Consultant agrees to assign to the Company any and all right, title and
interest in or to any and all inventions, developments, designs, improvements,
trade secrets, formulae, processes, devices, instruments, techniques, know-how
and data (the "Inventions," or, individually, "Invention") whether or not
patentable or registrable under copyright or similar statutes, made or conceived
or reduced to practice or learned by the Consultant, either alone or jointly
with others, during the term of this Agreement and which result from Consulting
Activities. In the event the Consultant makes an Invention that is within the
Field of Activity and is within the scope of the Company's business plans while
the Consultant is performing work unrelated to the Consulting Activities, if the
Company so requests, the Consultant shall use reasonable best efforts to cause
the Invention to be assigned to the Company (subject to limitations on
Consultant's efforts under applicable Rutgers policy), and if the Company so
requests, the Consultant agrees to assign to the Company any income due to the
Consultant from such Invention.

16. CONTINUED COOPERATION. The Consultant agrees to assist the Company in
every proper way in obtaining and from time to time in enforcing United States
and foreign patents, copyrights, and other rights and protections relating to
the Company Inventions in any and all countries. To that end, the Consultant
agrees to execute, verify and deliver such documents and to perform such other
acts (including appearances as a witness) as the Company may reasonably request
for use in applying for, obtaining, sustaining and enforcing such patents,
copyrights and other rights and protections on the Company's Inventions. In
addition, the Consultant agrees to execute, verify and deliver assignments of
such patents, copyrights, and other rights and protections on the Company
Inventions to the Company or its designee. The Consultant's obligations under
this Section 16 shall continue after expiration or termination of this
Agreement, and the Company shall compensate the Consultant at a reasonable rate
after such expiration or termination for Consultant's time and expenses related
to such requests for assistance by the Company. In the event the Company is
unable, after reasonable effort, to secure the Consultant's signature on any
document needed to apply for or prosecute any patent, copyright, or other right
or protection relating to any Invention of the Company, the Consultant hereby
irrevocably designates and appoints the Company and its duly authorized agents
as agent and attorney in fact, to act for and in the Consultant's behalf to
execute, verify and file any such

5
<PAGE>

applications and to do all other lawfully permitted acts to further the
prosecution and issuance of patents, copyrights, and other rights and
protections thereon with the same legal force and effect as if executed by the
Consultant.

20. MATERIALS. The Consultant agrees to maintain, in sufficient detail to
reflect properly all work done and results achieved in the performance of this
Agreement, such books, records, reports, research notes, charts, graphs,
comments, computations, analyses, recordings, photographs, and other graphic,
written or electronically stored data generated in connection with the
Consulting Activities to be performed hereunder. All such material shall become
the property of the Company when produced, whether or not delivered to the
Company, shall be subject to inspection by personnel designated by the Company
at reasonable times, and shall, together with any materials, equipment, supplies
or rights to the use and occupation of any premises furnished by the Company to
the Consultant under this Agreement, be delivered to the Company (together with
any reproductions thereof) upon expiration or termination of this Agreement.
Upon such expiration or termination, the Consultant shall not retain or dispose
of any of the materials (or reproductions thereof) covered hereunder, except by
delivery to the Company.

6
<PAGE>

22. WAIVER. Failure on any occasion by either party to enforce any
provision of this Agreement shall not prevent its enforcement by such party on
any other occasion.

25. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of California, without giving effect to the principles of conflict of laws
thereof.

7
<PAGE>

IN WITNESS WHEREOF, the parties have executed this Consulting Agreement as
of the date first above set forth.

SCIENTIFIC LEARNING PRINCIPLES CORPORATION

By: /s/ Carleton A. Holstrom
------------------------------------------
Carleton A. Holstrom
Chief Financial Officer

Address: One Kearny Street
Suite 501
San Francisco, CA 94108
Facsimile: (415) 296-1481
Telephone: (415) 296-1470

CONSULTANT

/s/ Paula A. Tallal
---------------------------------------------
Paula A. Tallal, Ph.D

Address: 3703 River Road
Lumberville, PA 18933
Facsimile: (201) 648-1272
Telephone: (201) 648-1080 x3200

8
<PAGE>

APPENDIX I

Pre-existing consulting commitments are as follows:

A. Grant and Public Policy Reviews
1. NIH
2. NSF
3. March of Dimes
4. Grant Foundation
5. Human Frontiers in Science Program
6. Rudel Foundation

B. Scientific Advisory Boards
1. Rodin Remediations Academy
2. March of Dimes
3. National Dyslexia Research Foundation
4. Santa Fe Institute
5. Rita Rudel Foundation

C. Consultant on Research Grant
1. Mt. Sinai School of Medicine
2. UCLA
3. NYU
4. Columbia University School of Medicine
5. Cambridge University School of Medicine
6. Children's Hospital, London

<PAGE>

MODIFICATION TO CONSULTING AGREEMENT

This Agreement ("Modification") modifies the Consulting Agreement ("Original
Agreement") dated September 19, 1996, between Scientific Learning Corporation
("Company") of Berkeley, California and Paula A. Tallal, Ph.D. ("Consultant").
To the extent that there are any differences between the Modification and the
Original Agreement, the term(s) of the Modification supercedes the corresponding
term(s) of the Original Agreement. Accordingly, Company and Consultant agree
that:

1) As of January 1, 1998, Consultant has returned officially to Rutgers
University as a full-time resident faculty member.

2) Between January 1, 1998 and December 31, 1998, Consultant shall devote an
average of one day per week on consulting activities for the Company.

4) Company shall reimburse Consultant for reasonable and customary expenses
that Consultant incurs in connection with Company's business. Such
expenses are subject to the Company's current expense/purchase approval
policies. For example, all business travel must be approved in advanced by
either the Chief Executive Officer or the Chief Financial Officer or their
designees.

5) Consultant is responsible for ensuring that consulting for Company under
both the Original Agreement and this Modification is consistent with the
current policies of Rutgers University such as Rutgers University's
conflict of interest policy.

Accepted and agreed by:

SCIENTIFIC LEARNING CORPORATION CONSULTANT

/s/ Frank Mattson /s/ Paula A. Tallal
- ----------------------------------- -----------------------------------
Authorized Signature Paula A. Tallal, Ph. D.

Frank Mattson January 22, 1998
- ----------------------------------- -----------------------------------
Printed Name Date

Chief Financial Officer
- -----------------------------------
Title

January 15, 1998
- -----------------------------------
Date

<PAGE>

CERTAIN CONFIDENTIAL INFORMATION
CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAD BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE
406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

EXHIBIT 10.13

EXCLUSIVE LICENSE AGREEMENT

BETWEEN

THE REGENTS OF THE UNIVERSITY OF CALIFORNIA

AND

SCIENTIFIC LEARNING PRINCIPLES CORPORATION

FOR

TRAINING AIDS FOR REMEDIATION OF LEARNING DISABILITIES

UC CASE NO. 94-069-1

<PAGE>

TABLE OF CONTENTS

PAGE

<S> <C> <C>
BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

2. LIFE OF PATENT EXCLUSIVE GRANT . . . . . . . . . . . . . . . . . . . . 3

3. SUBLICENSES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

4. PAYMENT TERMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

5. LICENSE-ISSUE FEE. . . . . . . . . . . . . . . . . . . . . . . . . . . 6

6. MILESTONE PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 7

7. EARNED ROYALTIES AND MINIMUM ANNUAL ROYALTIES. . . . . . . . . . . . . 7

8. DUE DILIGENCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

9. PROGRESS AND ROYALTY REPORTS . . . . . . . . . . . . . . . . . . . . . 9

10. BOOKS AND RECORDS. . . . . . . . . . . . . . . . . . . . . . . . . . . 10

11. LIFE OF THE AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . 10

12. TERMINATION BY THE REGENTS . . . . . . . . . . . . . . . . . . . . . . 11

13. TERMINATION BY THE LICENSEE. . . . . . . . . . . . . . . . . . . . . . 11

14. DISPOSITION OF LICENSED PRODUCTS ON HAND UPON TERMINATION. . . . . . . 12

15. USE OF NAMES AND TRADEMARKS. . . . . . . . . . . . . . . . . . . . . . 12

16. LIMITED WARRANTY . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

17. PATENT PROSECUTION AND MAINTENANCE . . . . . . . . . . . . . . . . . . 14

18. PATENT MARKING . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

19. PATENT INFRINGEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . 16

20. INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

21. NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

22. ASSIGNABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

23. NO WAIVER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

24. FAILURE TO PERFORM . . . . . . . . . . . . . . . . . . . . . . . . . . 20

25. GOVERNING LAWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

26. GOVERNMENT APPROVAL OR REGISTRATION. . . . . . . . . . . . . . . . . . 20

27. EXPORT CONTROL LAWS. . . . . . . . . . . . . . . . . . . . . . . . . . 21

28. SECRECY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

i
<PAGE>

TABLE OF CONTENTS
(CONTINUED)

PAGE

29. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

</TABLE>

<PAGE>

EXCLUSIVE LICENSE AGREEMENT

THIS LICENSE AGREEMENT (the "Agreement") is made effective this 27th day of
September, 1996 (the "Effective Date") between THE REGENTS OF THE UNIVERSITY OF
CALIFORNIA, a California corporation having its statewide administrative offices
at 300 Lakeside Drive, 22nd Floor, Oakland, California 94612-3550, ("The
Regents"), and SCIENTIFIC LEARNING PRINCIPLES CORPORATION, a California
corporation having a principal place of business at One Kearney Street, Suite
501, San Francisco, California 94108, (the "Licensee").

BACKGROUND

1. Certain inventions, generally characterized as "Training Aids for the
Remediation of Learning Disabilities" (collectively the "Invention"), were made
in the course of research at the University of California, San Francisco by Drs.
Michael Merzenich, William Jenkins, Christoph Schreiner and by Drs. Paula Tallal
and Steven Miller at Rutgers-the State University of New Jersey ("Rutgers") and
are covered by Regents' Patent Rights as defined below;

2. The Regents and Rutgers have entered into an inter-institutional
agreement whereby The Regents is authorized to enter into this Agreement on
behalf of both The Regents and Rutgers;

3. The Licensee and The Regents have executed a Letter of Intent (U.C.
Control No. 96-30-0452) dated January 9, 1996;

4. The Licensee wishes to obtain rights from The Regents for the
commercial development, use, and sale of products from the Invention, and The
Regents is willing to grant those rights so that the invention may be developed
to its fullest and the benefits enjoyed by the

1.
<PAGE>

general public; and

5. The Licensee is a "small business firm" as defined in 15 U.S.C.
Section 632;

6. Both parties recognize and agree that royalties due under this
Agreement will be paid on both pending patent applications and issued patents:

In view of the foregoing, the parties agree:

1. DEFINITIONS

1.1 "REGENTS' PATENT RIGHTS" means any subject matter claimed in or
covered by any of the following: Pending U.S. Patent Application Serial No.
08/351,803 entitled "Method and Device for Enhancing the Recognition of Speech
Among Speech-Impaired Individuals" filed December 8, 1994 by Drs. Merzenich,
Jenkins, Schreiner, Tallal, and Miller and assigned to The Regents and to
Rutgers; and continuing applications thereof including divisions and
substitutions but excluding continuation-in-part applications except to the
extent that the claims are enabled by the parent case; any patents issuing on
said applications including reissues, reexaminations and extensions; and any
corresponding foreign applications or patents.

1.2 "LICENSED PRODUCT" means any material that is either covered by
Regents' Patent Rights, that is produced by the Licensed Method, or that the use
of which would constitute, but for the license granted to the Licensee under
this Agreement, an infringement of any pending or issued claim within Regents'
Patent Rights.

1.3 "LICENSED METHOD" means any method that is covered by Regents' Patent
Rights, the use of which would constitute, but for the license granted to the
Licensee under this Agreement, an infringement of any pending or issued claim
within Regents' Patent Rights.

2.
<PAGE>

1.4 "NET SALES" means the total of the gross invoice prices of Licensed
Products sold or Licensed Methods performed by the Licensee, an Affiliate or a
sublicensee, less the sum of the following actual and customary deductions where
applicable: cash, trade, or quantity discounts; sales, use, tariff,
import/export duties or other excise taxes imposed on particular sales;
transportation charges and allowances; reserves for bad debts (not to exceed 3
%) or credits to customers because of rejections or returns. For purposes of
calculating Net Sales, transfers to an Affiliate or sublicensee for end use by
the Affiliate or sublicensee will be treated as sales at list price.

1.5 "AFFILIATE" means any corporation or other business entity in which
the Licensee owns or controls, directly or indirectly, at least fifty percent
(50%) of the outstanding stock or other voting rights entitled to elect
directors, or in which the Licensee is owned or controlled directly or
indirectly by at least fifty percent (50%) of the outstanding stock or other
voting rights entitled to elect directors; but in any country where the local
law does not permit foreign equity participation of at least fifty percent
(50%), then an "Affiliate" includes any company in which the Licensee owns or
controls or is owned or controlled by, directly or indirectly, the maximum
percentage of outstanding stock or voting rights permitted by local law.

2. LIFE OF PATENT EXCLUSIVE GRANT.

2.1 Subject to the limitations set forth in this Agreement, The Regents
grants to the Licensee a world-wide license under Regents' Patent Rights to
make, have made, use, sell, offer to sell and import Licensed Products and to
practice Licensed Methods.

2.2 Except as otherwise provided in this Agreement, the license granted in
Paragraph 2.1 is exclusive for the life of the Agreement.

3.
<PAGE>

2.3 The Regents and Rutgers reserves the right to use the Invention for
educational and research purposes.

3. SUBLICENSES.

3.1 The Regents also grants to the Licensee the right to issue sublicenses
to third parties to make, have made, use, sell, offer to sell and import
Licensed Products and to practice Licensed Method, as long as the Licensee has
current exclusive rights thereto under this Agreement. Throughout the term of
each sublicense, the Licensee shall ensure compliance by sublicensee with, to
the extent applicable, all of the rights and obligations due to the Regents and
Rutgers contained in this Agreement.

3.2 The Licensee shall promptly provide The Regents with a copy of each
sublicense issued; collect and guarantee payment of all payments due The Regents
based on sublicensee's sales; and summarize and deliver all reports due The
Regents based on sublicensee's sales.

3.3 Upon termination of this Agreement for any reason, The Regents, at its
sole discretion, shall determine whether the Licensee shall cancel or assign to
The Regents any and all sublicenses.

3.4 Licensee shall pay to The Regents consideration from sublicensing or
transferring the rights licensed to Licensee as follows:

3.4.1 ROYALTIES - the greater of: (i) [ * ] of the royalty income
received by Licensee and/or its Affiliates from any sublicensee in
consideration of the sublicense grant or rights transfer; or (ii) the
royalty based on sublicensee's Net Sales in accordance with the royalty
schedule in Article 7 (EARNED ROYALTIES AND MINIMUM ANNUAL ROYALTIES).

[ * ]Confidential Treatment Requested

4.
<PAGE>

3.4.2 NON-ROYALTY CONSIDERATION - [ * ] of all non-royalty
consideration, received by Licensee and its Affiliates in consideration of
the sublicense grant or rights transfer, except for the portion thereof
which is designated and demonstrably used by Licensee solely for its
development of Licensed Products and Licensed Methods, excluding equity
payments, bona fide loans and other payments not associated with the
sublicense.

4. PAYMENT TERMS.

4.1 Paragraphs 1.1, 1.2, and 1.3 define Regents' Patent Rights, Licensed
Products and Licensed Methods so that royalties are payable on products and
methods covered by both pending patent applications and issued patents.
Royalties will accrue in each country for the duration of Regents' Patent Rights
in that country and are payable to The Regents when Licensed Products are
invoiced. or if not invoiced, when delivered to a third party.

4.2 Licensee shall pay earned royalties quarterly on or before February
28, May 31, August 31 and November 30 of each calendar year. Each payment will
be for earned royalties accrued within the Licensee's most recently completed
calendar quarter.

4.3 All monies due The Regents are payable in United States dollars. When
Licensed Products are sold for monies other than United States dollars, the
Licensee shall first determine the earned royalty in the currency of the country
in which Licensed Products were sold and then convert the amount into equivalent
United States funds, using the exchange rate quoted in the Wall Street Journal
on the last business day of the reporting period.

4.4 Royalties earned on sales occurring in any country outside the United
States may not be reduced by any taxes, fees, or other charges imposed by the
government of such country on the payment of royalty income. The Licensee is
also responsible for all bank transfer charges.

[ * ]Confidential Treatment Requested

5.
<PAGE>

Notwithstanding this, all payments made by the Licensee in fulfillment of The
Regents' tax liability in any particular country will be credited against earned
royalties or fees due The Regents for that country.

4.5 If at any time legal restrictions prevent the prompt remittance of
royalties by the Licensee from any country where a Licensed Product is sold, the
Licensee shall convert the amount owed to The Regents into United States funds
and shall pay The Regents directly from its U.S. source of funds for as long as
the legal restrictions apply.

4.6 If any patent or patent claim within Regents' Patent Rights is held
invalid in a final decision by a court of competent jurisdiction and last resort
and from which no appeal has or can be taken, all obligation to pay royalties
based on that patent or claim or any claim patentably indistinct therefrom will
cease as of the date of final decision. The Licensee will not, however, be
relieved from paying any royalties that accrued before the final decision or
that are based on another patent or claim not involved in the final decision. or
that are based on The Regents' property rights.

4.7 In the event payments, rebillings or fees are not received by The
Regents when due, the Licensee shall pay to The Regents interest charges at a
rate of [ * ] per annum. Interest is calculated from the date payment was due
until actually received by The Regents.

5. LICENSE-ISSUE FEE.

5.1 The Licensee shall pay to The Regents a LICENSE-ISSUE FEE of [ * ]
dollars ($[ * ]) payable as follows: [ * ] Dollars ($[ * ]) within seven days
after the Effective Date; [ * ] Dollars ($[ * ]) on August 31, 1997 and [ * ]
Dollars ($[ * ]) on February 28, 1998. This fee is non-refundable,
non-cancelable, and is not an advance against royalties.

[ * ]Confidential Treatment Requested

6.
<PAGE>

5.2 The Licensee shall also grant to Rutgers three hundred ninety-three
thousand five hundred seventy-six (393,576) shares of series A preferred stock
within thirty (30) days of execution of this Agreement.

6. MILESTONE PAYMENTS.

6.1 The Licensee shall also pay to The Regents a royalty in the form of a
milestone payments of [ * ] Dollars ($[ * ]) upon Licensee reaching [ * ]
Dollars ($[ * ]) in cumulative Net Sales of Licensed Products or Licensed
Methods: [ * ] Dollars ($[ * ]) upon Licensee reaching [ * ] Dollars ($[ *]) in
cumulative Net Sales of Licensed Products or Licensed Methods; and [ * ] Dollars
($[ * ]) upon Licensee reaching [ * ] Dollars ($[ * ]) in cumulative Net Sales
of Licensed Products and Licensed Methods. Milestone payments are non-refundable
and not an advance against earned Royalties.

7. EARNED ROYALTIES AND MINIMUM ANNUAL ROYALTIES.

7.1 The Licensee shall also pay to The Regents AN EARNED ROYALTY as
follows: [ * ] of the first [ * ] Dollars ($[ * ]) of cumulative Net Sales of
Licensed Products or Licensed Methods; [ * ] thereafter until cumulative Net
Sales reaches [ * ] Dollars ($[ * ]); and [ * ] of the cumulative Net Sales of
Licensed Products and Licensed Methods in excess of [ * ] Dollars ($[ * ]).

7.2 The Licensee shall pay to The Regents a MINIMUM ANNUAL ROYALTY of
[ *] Dollars ($[ * ]) beginning with the year of the first commercial sale of
Licensed Product; [ * ] dollar ($[ * ]) in the second year of first commercial
sale and [ * ] Dollars ($[ * ]) per year for the life of Regents Patent Rights.
For the first year of commercial sales, the Licensee's obligation to pay the
minimum annual royalty will be pro-rated for the number of months remaining in
that calendar year when commercial sales commence and will be due the following
February 28, to

[ * ]Confidential Treatment Requested

7.
<PAGE>

allow for crediting of the pro-rated year's earned royalties. For subsequent
years, the minimum annual royalty will be paid to The Regents by February 28 of
each year and will be credited against the earned royalty due for the calendar
year in which the minimum payment was made.

8. DUE DILIGENCE.

8.1 The Licensee, on execution of this Agreement, shall diligently proceed
with the development, manufacture and sale of Licensed Products and shall
earnestly and diligently endeavor to market the same within a reasonable time
after execution of this Agreement and in quantities sufficient to meet market
demands.

8.2 The Licensee shall endeavor to obtain all necessary governmental
approvals for the manufacture, use and sale of Licensed Products.

8.3 The Licensee shall:

8.3.1 complete a second round of financing by April 30, 1997;

8.3.2 commence beta-testing of Licensed Products by December 31,
1996:

8.3.3 make commercially reasonable efforts to market and sell
Licensed Products in the United States by November 30, 1997;
and

8.3.4 act in a commercially reasonable manner to fill the market
demand for Licensed Products following commencement of
marketing at any time during the exclusive period of this
Agreement.

8.4 If the Licensee is unable to perform any of the above provisions, then
The Regents has the right and option to either terminate this Agreement or
reduce the Licensee's exclusive license to a nonexclusive license. This right,
if exercised by The Regents, supersedes the rights granted in Article 2 (GRANT).

8.
<PAGE>

8.5 In addition to the obligations set forth above, the Licensee shall
spend an aggregate of not less than [ * ] Dollars ($[ * ]) for the development
of Licensed Products during the first year of this Agreement.

9. PROGRESS AND ROYALTY REPORTS.

9.1 Beginning February 28, 1997 and semi-annually thereafter, the Licensee
shall submit to The Regents a progress report covering the Licensee's (and any
Affiliate or sublicensee's) activities related to the development and testing of
all Licensed Products and the obtaining of the governmental approvals necessary
for marketing. Progress reports are required for each Licensed Product until the
first commercial sale of that Licensed Product occurs in the United States and
shall be again required if commercial sales of such Licensed Product are
suspended or discontinued.

9.2 Progress reports submitted under Paragraph 9.1 shall include, but are
not limited to, the following topics:

* summary of work completed
* key scientific discoveries
* summary of work in progress
* current schedule of anticipated events or milestones
* market plans for introduction of Licensed Products, and
* a summary, of resources (dollar value) spent in the
reporting period.

9.3 The Licensee has a continuing responsibility to keep The Regents
informed of the large/small business entity status (as defined by the United
States Patent and Trademark Office) of itself and its sublicensees and
Affiliates.

9.4 The Licensee shall report to The Regents in its immediately subsequent
progress and royalty report the date of first commercial sale of a Licensed
Product in each country.

[ * ]Confidential Treatment Requested

9.
<PAGE>

9.5 After the first commercial sale of a Licensed Product anywhere in the
world, the Licensee shall make quarterly royalty reports to The Regents on or
before each February 28, May 31, August 31, and November 30 of each year. Each
royalty report will cover the Licensee's most recently completed calendar
quarter and will show (a) the gross sales and Net Sales of Licensed Products
sold during the most recently completed calendar quarter; (b) the number of each
type of Licensed Product sold; (c) the royalties, in U.S. dollars, payable with
respect to sales of Licensed Products; (d) the method used to calculate the
royalty; and (e) the exchange rates used.

9.6 If no sales of Licensed Products have been made during any reporting
period, a statement to this effect is required.

10. BOOKS AND RECORDS.

10.1 The Licensee shall keep accurate books and records showing all
Licensed Products manufactured, used, and/or sold under the terms of this
Agreement. Books and records must be preserved for at least five (5) years from
the date of the royalty payment to which they pertain.

10.2 Books and records must be open to inspection by representatives or
agents of The Regents at reasonable times. The Regents shall bear the fees and
expenses of examination but if an error in royalties of more than five percent
(5 %) underpayment of the total royalties due for any year is discovered in any
examination then the Licensee shall bear the fees and expenses of that
examination.

11. LIFE OF THE AGREEMENT.

11.1 Unless otherwise terminated by operation of law or by acts of the
parties in accordance with the terms of this Agreement, this Agreement will be
in force from the Effective

10.
<PAGE>

Date until the last-to-expire patent licensed under this Agreement; or until the
last patent application licensed under this Agreement is abandoned and no patent
in Regents' Patent Rights ever issues.

11.2 Any termination of this Agreement will not affect the rights and
obligations set forth in the following Articles:

Article 10 Books and Records
Article 14 Disposition of Licensed Products on Hand on
Termination
Article 15 Use of Names and Trademarks
Article 20 Indemnification
Article 24 Failure to Perform
Article 28 Secrecy

12. TERMINATION BY THE REGENTS.

12.1 If the Licensee fails to perform or violates any term of this
Agreement, then The Regents may give written notice of default (Notice of
Default) to the Licensee. If the Licensee fails to repair the default within
sixty (60) days of the effective date of Notice of Default, The Regents may
terminate this Agreement and its licenses by a second written notice (Notice of
Termination). If a Notice of Termination is sent to the Licensee, this Agreement
will automatically terminate on the effective date of that notice. Termination
will not relieve the Licensee of its obligation to pay any fees owing at the
time of termination and will not impair any accrued right of The Regents. These
notices are subject to Article 21 (Notices).

13. TERMINATION BY THE REGENTS.

13.1 The Licensee has the right at any time to terminate this Agreement in
whole or as to any portion of Regents' Patent Rights by giving notice in writing
to The Regents. Notice of termination will be subject to Article 21 (Notices)
and termination of this Agreement will be effective sixty (60) days from the
effective date of notice.

11.
<PAGE>

13.2 Any termination under the above paragraph does not relieve the
Licensee of any obligation or liability accrued under this Agreement prior to
termination or rescind any payment made to The Regents or anything done by
Licensee prior to the time termination becomes effective. Termination does not
affect in any manner any rights of The Regents arising under this Agreement
prior to termination.

14. DISPOSITION OF LICENSED PRODUCTS ON HAND UPON TERMINATION.

14.1 Upon termination of this Agreement the Licensee is entitled to dispose
of all previously made or partially made Licensed Products, but no more, within
a period of one hundred and twenty (120) days provided that the sale of those
Licensed Products is subject to the terms of this Agreement, including but not
limited to the rendering of reports and payment of royalties required under this
Agreement.

15. USE OF NAMES AND TRADEMARKS.

15.1 Nothing contained in this Agreement confers any right to use in
advertising, publicity, or other promotional activities any name, trade name,
trademark, or other designation of either party hereto (including contraction,
abbreviation or simulation of any of the foregoing). Unless required by law, the
use by the Licensee of the name "The Regents of the University of California" or
the name of any campus of the University of California is prohibited.

16. LIMITED WARRANTY.

16.1 The Regents warrants to the Licensee that it has the lawful right to
grant this license.

16.2 This license and the associated Invention are provided WITHOUT
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER
WARRANTY, EXPRESS OR IMPLIED. THE REGENTS AND RUTGERS MAKE NO

12.
<PAGE>

REPRESENTATION OR WARRANTY THAT THE LICENSED PRODUCTS OR LICENSED METHODS WILL
NOT INFRINGE ANY PATENT OR OTHER PROPRIETARY RIGHT.

16.3 IN NO EVENT MAY THE REGENTS OR RUTGERS BE LIABLE FOR ANY INCIDENTAL,
SPECIAL OR CONSEQUENTIAL DAMAGES RESULTING FROM EXERCISE OF THIS LICENSE OR THE
USE OF THE INVENTION OR LICENSED PRODUCTS.

16.4 This Agreement does not:

16.4.1 express or imply a warranty or representation as to the
validity or scope of any of Regents' Patent Rights;

16.4.2 express or imply a warranty or representation that anything
made, used, sold, offered for sale or imported or otherwise
disposed of under any license granted in this Agreement is
or will be free from infringement of patents of third
parties;

16.4.3 obligate The Regents or Rutgers to' bring or prosecute
actions or suits against third parties for patent
infringement except as provided in Article 19;

16.4.4 confer by implication, estoppel or otherwise any license or
rights under any patents of The Regents other than Regents'
Patent Rights as defined in this Agreement, regardless of
whether those patents are dominant or subordinate to
Regent's Patent Rights: or

16.4.5 obligate The Regents to furnish any know-how not provided in
Regents' Patent Rights.

13.
<PAGE>

17. PATENT PROSECUTION AND MAINTENANCE.

17.1 As long as the Licensee has paid patent costs as provided for in this
Article, The Regents shall diligently endeavor to prosecute and maintain the
United States and foreign patents comprising Regents' Patent Rights using
counsel of its choice, and The Regents shall provide the Licensee with copies of
all relevant documentation so that the Licensee may be informed of the
continuing prosecution and the Licensee agrees to keep this documentation
confidential. The Regent' counsel will take instructions only from The Regents,
and all patents and patent applications under this Agreement will be assigned
solely to The Regents.

17.2 The Regents shall use all reasonable efforts to amend any patent
application to include claims reasonably requested by the Licensee to protect
the products contemplated to be sold under this Agreement.

17.3 The Licensee shall apply for an extension of the term of any patent
included within Regents' Patent Rights if appropriate under the Drug Price
Competition and Patent Term Restoration Act of 1984 and/or European, Japanese
and other foreign counterparts of this Law. The Licensee shall prepare all
documents, and The Regents agrees to execute the documents and to take
additional action as the Licensee reasonably requests in connection therewith.

17.4 If either party receives notice pertaining to infringement or
potential infringement of any issued patent included within Regents' Patent
Rights under the Drug Price Competition and Patent Term Restoration Act of 1984
(and/or foreign counterparts of this Law), that party shall notify the other
party within ten (10) days after receipt of notice of infringement.

17.5 The Licensee shall bear the costs of preparing, filing, prosecuting
and maintaining all United States and foreign patent applications contemplated
by this Agreement. Costs billed by The Regents' counsel will be rebilled to the
Licensee and are due within thirty (30) days of

14.
<PAGE>

rebilling by The Regents. These costs include patent prosecution costs for the
Invention incurred by The Regents prior to the execution of this Agreement and
any patent prosecution costs that may be incurred for patentability opinions,
re-examination, re-issue, interferences, or inventorship determinations. Prior
costs will be due on execution of this Agreement and billing by The Regents and
are at least approximately $7,798.00.

17.6 The Licensee may request The Regents to obtain patent protection on
the Invention in foreign countries if available and if it so desires. The
Licensee shall notify The Regents of its decision to obtain or maintain foreign
patents not less than sixty (60) days prior to the deadline for any payment,
filing, or action to be taken in connection therewith. This notice concerning
foreign filing must be in writing, must identify the countries desired, and must
reaffirm the Licensee's-obligation to underwrite the costs thereof. The absence
of such a notice from the Licensee to The Regents will be considered an election
not to obtain or maintain foreign rights.

17.7 The Licensee's obligation to underwrite and to pay patent prosecution
costs will continue for so long as this Agreement remains in effect, but the
Licensee may terminate its obligations with respect to any given patent
application or patent upon three (3) months written notice to The Regents. The
Regents will use its best efforts to curtail patent costs when a notice of
termination is received from the Licensee. The Regents may prosecute and
maintain such application(s) or patent(s) at its sole discretion and expense,
but the Licensee will have no further right or licenses thereunder. Non-payment
of patent costs may be deemed by The Regents as an election by the Licensee not
to maintain application(s) or patent(s).

17.8 The Regents may file, prosecute or maintain patent applications at its
own expense in any country in which the Licensee has not elected to file,
prosecute, or maintain

15.
<PAGE>

patent applications in accordance with this Article, and those applications and
resultant patents will not be subject to this Agreement.

18. PATENT MARKING.

18.1 The Licensee shall mark all Licensed Products made, used or sold under
the terms of this Agreement, or their containers, in accordance with the
applicable patent marking laws.

19. PATENT INFRINGEMENT.

19.1 If the Licensee or The Regents learns of the substantial infringement
of any patent licensed under this Agreement, that party shall call the other
party's attention thereto in writing and provide them with reasonable evidence
of infringement. Neither party will notify a third party of the infringement of
any of Regents' Patent Rights without first obtaining consent of the other
party, which consent will not be unreasonably denied. Both parties shall use
their best efforts in cooperation with each other to terminate infringement
without litigation.

19.2 The Licensee may request that The Regents take legal action against
the infringement of Regents' Patent Rights. Request must be in writing and must
include reasonable evidence of infringement and damages to the Licensee. If the
infringing activity has not abated within ninety (90) days following the
effective date of request, The Regents then has the right to:

19.2.1 commence suit on its own account; or

19.2.2 refuse to participate in the suit,

and The Regents shall give notice of its election in writing to the Licensee by
the end of the one-hundredth (100th) day after receiving notice of written
request from the Licensee. The Licensee may thereafter bring suit for patent
infringement, at its own expense, if and only if The Regents elects not to
commence suit and if the infringement occurred during the period and in a
jurisdiction where the Licensee had exclusive rights under this Agreement.
Licensee may join

16.
<PAGE>

The Regents' suit unless The Regents determine that there are conflict of
interest or other institutional issues involved in the suit. If, however, the
Licensee elects to bring suit in accordance with this paragraph, The Regents may
thereafter join that suit at its own expense. If Licensee elects to bring suit,
it may defer payment of up to fifty percent (50%) of the earned royalties, due
under this Agreement from Net Sales in the county in which the suit is brought,
to fund the suit. Licensee shall promptly remit payment to The Regents of any
such deferred royalties no later than sixty (60) days after settlement;
dismissal; or other termination of the trial court action.

19.3 Legal action as is decided on will be at the expense of the party
bringing suit and all damages recovered thereby will belong to the party
bringing suit, but legal action brought jointly by The Regents and the Licensee
and fully participated in by both will be at the joint expense of the parties
and all recoveries will be allocated in the following order: (I) to each party
reimbursement in equal amounts of the attorney's costs, fees, and other related
expenses to the extent each party paid for such costs, fees and expenses until
all such costs, fees, and expenses are consumed for each party; and (ii) any
remaining amount will be shared as follows: of any recoveries recovered for
direct damages, twenty-five percent (25%) shall be paid to the Regents and
seventy-five percent (75%) shall be paid to the Licensee; of any recoveries
recovered for enhanced damages, one-half shall be paid to the Regents and
one-half shall be retained by the Licensee.

19.4 Each party shall cooperate with the other in litigation proceedings
instituted hereunder, but at the expense of the party bringing suit except for
suits brought jointly. Litigation

17.
<PAGE>

will be controlled by the party bringing the suit except for suits brought
jointly, except that The Regents may be represented by counsel of its choice in
any suit brought by the Licensee.

20. INDEMNIFICATION.

20.1 The Licensee shall indemnify, hold harmless and defend The Regents and
Rutgers, their respective officers, employees, and agents; the sponsors of the
research that led to the Invention; and the inventors of the patents and patent
applications in Regents' Patent Rights and their employers against any and all
claims, suits, losses, liabilities, damages, costs. fees, and expenses resulting
from or arising out of exercise of this license or any sublicense. This
indemnification includes, but is not limited to, any product liability.

20.2 The Licensee, at its sole cost and expense, shall insure its
activities in connection with the work under this Agreement and obtain, keep in
force and maintain insurance as follows, or an equivalent program of self
insurance:

20.3 Comprehensive or commercial form general liability insurance
(contractual liability included) with limits as follows:

* Each Occurrence $[ * ]
* Products/Completed Operations Aggregate $[ * ]
* Personal and Advertising Injury $[ * ]
* General Aggregate (commercial form only) $[ * ]

Licensee agrees to review whether these limits should be increased in accordance
with the level of sales of Licensed Product; such review to be conducted every,
five (5) years from the effective date of this Agreement in coordination with
The Regents. The coverage and limits referred to under the above do not in any
way limit the liability of the Licensee. The Licensee shall furnish The Regents
with certificates of insurance showing compliance with all requirements.
Certificates must:

[ * ]Confidential Treatment Requested

18.
<PAGE>

* Provide for thirty (30) days' advance written notice to The
Regents and Rutgers of any modification.

* Indicate that The Regents and Rutgers has been endorsed as
an additional Insured under the coverage referred to under
the above.

* Include a provision that the coverage will be primary. and
will not participate with nor will be excess over any valid
and collectable insurance or program of self-insurance
carried or maintained by The Regents or by Rutgers.

20.4 The Regents shall notify the Licensee in writing of any claim or suit
brought against The Regents or Rutgers in respect of which The Regents or
Rutgers intends to invoke the provisions of this Article. The Licensee shall
keep The Regents and Rutgers informed on a current basis of its defense of any
claims under this Article. There shall be no settlement of a claim for which
indemnification is sought under this Article 20 without the consent of the
indemnifying party, such consent not to be unreasonably withheld.

21. NOTICES.

21.1 Any notice or payment required to be given to either party is properly
given and effective (a) on the date of delivery if delivered in person or (b)
five (5) days after mailing if mailed by first-class certified mail, postage
paid, to the respective addresses given below, or to another address as is
designated by written notice given to the other party.

In the case of the Licensee: SCIENTIFIC LEARNING PRINCIPLES CORPORATION
One Kearney Street, Suite 501
San Francisco, CA 94108
Attention: Controller

In the case of The Regents: THE REGENTS OF THE UNIVERSITY OF CALIFORNIA
Office of Technology Transfer
1320 Harbor Bay Parkway, Suite 150
Alameda, California 94502
Attention: Executive Director
Research Administration and
Technology Transfer

19.
<PAGE>

Referring to: UC Case No. 94-069

22. ASSIGNABILITY.

22.1 The payments under this Agreement may be assigned by The Regents. This
Agreement is personal to the Licensee and assignable by the Licensee only with
the written consent of The Regents, which consent will not be unreasonably
withheld. This Agreement is assignable by the Licensee to the surviving entity
of a merger.

23. NO WAIVER.

23.1 No waiver by either party of any default of this Agreement may be
deemed a waiver of any subsequent or similar default.

24. FAILURE TO PERFORM.

24.1 If either party finds it necessary to undertake legal action against
the other on account of failure of performance due under this Agreement, then
the prevailing party is entitled to reasonable attorney's fees in addition to
costs and necessary disbursements.

25. GOVERNING LAWS.

25.1 THIS AGREEMENT WILL BE INTERPRETED AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF CALIFORNIA, but the scope and validity of any patent or
patent application will be governed by the applicable laws of the country of the
patent or patent application.

26. GOVERNMENT APPROVAL OR REGISTRATION.

26.1 Licensee shall notify The Regents if it becomes aware that this
Agreement is subject to any U.S. or foreign government reporting or approval
requirement. Licensee shall make all necessary filings and pay all costs
including fees, penalties, and all other out-of-pocket costs associated with
such reporting or approval process.

20.
<PAGE>

27. EXPORT CONTROL LAWS.

27.1 The Licensee shall observe all applicable United States and foreign
laws with respect to the transfer of Licensed Products and related technical
data to foreign countries, including, without limitation, the International
Traffic in Arms Regulations (ITAR) and the Export Administration Regulations.

28. SECRECY.

28.1 With regard to confidential information ("Data"), which can be oral or
written or both, received from The Regents regarding this Invention, the
Licensee agrees:

28.1.1 not to use the Data except for the sole purpose of
performing under the terms of this Agreement;

28.1.2 to safeguard Data against disclosure to others with the same
degree of care as it exercises with its own data of a
similar nature;

28.1.3 not to disclose Data to others (except to its employees,
agents or consultants who are bound to the Licensee by a
like obligation of confidentiality) without the express
written permission of The Regents, except that the Licensee
is not prevented from using or disclosing any of the Data
that:

28.1.3.1 the Licensee can demonstrate by written records
was previously known to it;

28.1.3.2 is now, or becomes in the future, public knowledge
other than through acts or omissions of the
Licensee; or

28.1.3.3 is lawfully obtained by the Licensee from sources
independent of The Regents; and

21.
<PAGE>

28.1.4 that the secrecy obligations of the Licensee with
respect to Data will continue for a period ending
five (5) years from the termination date of this
Agreement.

29. MISCELLANEOUS.

29.1 The headings of the several sections are inserted for convenience of
reference only and are not intended to be a part of or to affect the meaning or
interpretation of this Agreement.

29.2 This Agreement is not binding on the parties until it has been signed
below on behalf of each party. It is then effective as of the Effective Date.

29.3 No amendment or modification of this Agreement is valid or binding on
the parties unless made in writing and signed on behalf of each party.

29.4 This Agreement embodies the entire understanding of the parties and
supersedes all previous Communications, representations or understandings,
either oral or written, between the parties relating to the subject matter
hereof.

29.5 In case any of the provisions contained in this Agreement is held to
be invalid, illegal, or unenforceable in any respect, that invalidity,
illegality or unenforceability will not affect any other provisions of this
Agreement, and this Agreement will be construed as if the invalid, illegal, or
unenforceable provisions had never been contained in it.

29.6 This Agreement will be governed by the laws of the State of California
and the United States of America.

IN WITNESS WHEREOF, both The Regents and the Licensee have executed this
Agreement, in duplicate originals, by their respective and duly authorized
officers on the day and year written.

22.
<PAGE>

SCIENTIFIC LEARNING PRINCIPLES THE REGENTS OF THE UNIVERSITY OF
CORPORATION: CALIFORNIA:

By:/s/ [signature] By:/s/ [signature]
---------------------------- -----------------------------
(Signature) (Signature)

Name:David E. Charron Name: Director, OTM
-------------------------- University of California,
(Please Print) San Francisco

Title:Vice President Date: September 27, 1996
------------------------- ---------------------------

Date:September 27, 1996
---------------------------

23.

<PAGE>
---------------------------

LOAN AND SECURITY AGREEMENT

----------------------------

<PAGE>
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
1. ACCOUNTING AND OTHER TERMS. . . . . . . . . . . . . . . . . . . . . . .1

2. LOAN AND TERMS OF PAYMENT . . . . . . . . . . . . . . . . . . . . . . .1

2.1 Credit Extensions. . . . . . . . . . . . . . . . . . . . . . . . .1

2.2 Interest Rate, Payments. . . . . . . . . . . . . . . . . . . . . .2

2.3 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

3. CONDITIONS OF LOANS . . . . . . . . . . . . . . . . . . . . . . . . . .2

3.1 Conditions Precedent to Initial Credit Extension . . . . . . . . .3

3.2 Conditions Precedent to all Credit Extensions. . . . . . . . . . .3

4. CREATION OF SECURITY INTEREST . . . . . . . . . . . . . . . . . . . . .3

4.1 Grant of Security Interest . . . . . . . . . . . . . . . . . . . .3

5. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . . .3

5.1 Due Organization and Authorization . . . . . . . . . . . . . . . .3

5.2 Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

5.3 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

5.4 No Material Adverse Change in Financial Statements . . . . . . . .4

5.5 Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

5.6 Regulatory Compliance. . . . . . . . . . . . . . . . . . . . . . .4

5.7 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . .4

5.8 Full Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . .5

6. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . .5

6.1 Government Compliance. . . . . . . . . . . . . . . . . . . . . . .5

6.2 Financial Statements, Reports, Certificates. . . . . . . . . . . .5

6.3 Inventory; Returns . . . . . . . . . . . . . . . . . . . . . . . .5

6.4 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6

6.5 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . .6

6.6 Primary Accounts . . . . . . . . . . . . . . . . . . . . . . . . .6

6.7 Financial Covenants. . . . . . . . . . . . . . . . . . . . . . . .6

6.8 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . .7

7. NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . .7

7.1 Dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . .7
</TABLE>

i.
<PAGE>

TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
7.2 Changes in Business, Ownership, Management or Business Locations .7

7.3 Mergers or Acquisitions. . . . . . . . . . . . . . . . . . . . . .7

7.4 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . .8

7.5 Encumbrance. . . . . . . . . . . . . . . . . . . . . . . . . . . .8

7.6 Distributions; Investments . . . . . . . . . . . . . . . . . . . .8

7.7 Transactions with Affiliates . . . . . . . . . . . . . . . . . . .8

7.8 Subordinated Debt. . . . . . . . . . . . . . . . . . . . . . . . .8

7.9 Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . .8

8. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . .8

8.1 Payment Default. . . . . . . . . . . . . . . . . . . . . . . . . .9

8.2 Covenant Default . . . . . . . . . . . . . . . . . . . . . . . . .9

8.3 Material Adverse Change. . . . . . . . . . . . . . . . . . . . . .9

8.4 Attachment . . . . . . . . . . . . . . . . . . . . . . . . . . . .9

8.5 Insolvency . . . . . . . . . . . . . . . . . . . . . . . . . . . .9

8.6 Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . .9

8.7 Judgments. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

8.8 Misrepresentations . . . . . . . . . . . . . . . . . . . . . . . 10

9. BANK'S RIGHTS AND REMEDIES. . . . . . . . . . . . . . . . . . . . . . 10

9.1 Rights and Remedies. . . . . . . . . . . . . . . . . . . . . . . 10

9.2 Power of Attorney. . . . . . . . . . . . . . . . . . . . . . . . 11

9.3 Accounts Collection. . . . . . . . . . . . . . . . . . . . . . . 11

9.4 Bank Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . 11

9.5 Bank's Liability for Collateral. . . . . . . . . . . . . . . . . 11

9.6 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . 11

9.7 Demand Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . 12

10. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

11. CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER. . . . . . . . . . . . . . 12

12. GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 12

12.1 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . 12

12.2 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>

ii.
<PAGE>

TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
12.3 Time of Essence. . . . . . . . . . . . . . . . . . . . . . . . . 13

12.4 Severability of Provision. . . . . . . . . . . . . . . . . . . . 13

12.5 Amendments in Writing, Integration . . . . . . . . . . . . . . . 13

12.6 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 13

12.7 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

12.8 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . 13

13. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

13.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>

iii.

<PAGE>

THIS LOAN AND SECURITY AGREEMENT dated February 13, 1998, between SILICON
VALLEY BANK ("Bank"), whose address is 3003 Tasman Drive, Santa Clara,
California 95054 with a loan production office located at 1731 Embarcadero, Ste.
220, Palo Alto, California 94303 and SCIENTIFIC LEARNING CORPORATION
("Borrower"), whose address is 1995 University Avenue, Suite 400. Berkeley,
California 94704 provides the terms on which Bank will lend to Borrower and
Borrower will repay Bank. The parties agree as follows:

1. ACCOUNTING AND OTHER TERMS

Accounting terms not defined in this Agreement will be construed following
GAAP Calculations and determinations must be made following GAAP. The term
"financial statements" includes the notes and schedules. The terms "including"
and "includes" always mean "including (or includes) without limitation," in this
or any Loan Document. This Agreement shall be construed to impart upon Bank a
duty to act reasonably at all times.

2. LOAN AND TERMS OF PAYMENT

2.1 CREDIT EXTENSIONS.

Borrower will pay Bank the unpaid principal amount of all Credit
Extensions and interest on the unpaid principal amount of the Credit Extensions.

2.1.1 TERM LOAN.

(A) Bank will make a Term Loan available to Borrower.

(b) Borrower will pay 15 equal installments of $16,136.37
in principal plus interest (the "Term Loan Payment"). Each Term Loan Payment is
payable on the 20th of each month, commencing April 20, 1998, during the term of
the loan. Borrower's final Term Loan Payment, due June 20, 1999, includes all
outstanding Term Loan principal and accrued interest.

2.1.2 CASH MANAGEMENT FACILITY.

Borrower may use up to $45,000 for Bank's Cash Management
Services, which may include merchant services, direct deposit of payroll,
business credit card, and check cashing services identified in the Cash
Management Services Agreement (the "Cash Management Services"). All amounts
Bank pays for any Cash Management Services will be treated as a Credit Extension
and shall accrue interest at three percentage points (3.000%) above the Prime
Rate. The Cash Management Facility terminates on June 20, 1999, when all
amounts due under this facility are immediately payable.

2.1.3 EQUIPMENT ADVANCES.

1.
<PAGE>

(a) Through August 13, 1998 (the "Equipment Availability
End Date"), Bank will make advances ("Equipment Advance" and, collectively,
"Equipment Advances") not exceeding the Committed Equipment Line. The Equipment
Advances may only be used to finance Equipment and may not exceed 100% of the
equipment invoice excluding taxes, shipping, warranty charges, freight discounts
and installation expense.

(b) Interest accrues from the date of each Equipment
Advance at the rate in Section 2.2(a) and is payable monthly until the Equipment
Availability End Date occurs. Equipment Advances outstanding on the Equipment
Availability End Date are payable in twenty-four (24) equal monthly installments
of principal, plus accrued interest, beginning on the thirteenth (13th) of each
month following the Equipment Availability End Date and ending on August 13,
2000 (the "Equipment Maturity Date"). Equipment Advances when repaid may not be
reborrowed.

(c) To obtain an Equipment Advance, Borrower must notify
Bank (the notice is irrevocable) by facsimile no later than 3:00 p.m. Pacific
time 1 Business Day before the day on which the Equipment Advance is to be made.
The notice in the form of Exhibit B (Payment/Advance Form) must be signed by a
Responsible Officer or designee and include a copy of the invoice for the
Equipment being financed.

2.2 INTEREST RATE, PAYMENTS.

(a) INTEREST RATE. Equipment Advances accrue interest on the
outstanding principal balance at a per annum rate of three percentage points
(3.000%) above the Prime Rate. After an Event of Default. Obligations accrue
interest at five percentage points (5.000%) above the rate effective immediately
before the Event of Default. The interest rate increases or decreases when the
Prime Rate changes. Interest is computed on a 360 day year for the actual
number of days elapsed.

(b) PAYMENTS. Interest due on the Equipment Advances is payable on
the thirteenth (13th) of each month. Bank may debit any of Borrower's deposit
accounts including Account Number __________ for principal and interest payments
or any amounts Borrower owes Bank. Bank will notify Borrower when it debits
Borrower's accounts. These debits are not a set-off. Payments received after
12:00 noon Pacific time are considered received at the opening of business on
the next Business Day. When a payment is due on a day that is not a Business
Day, the payment is due the next Business Day and additional fees or interest
accrue.

2.3 FEES.

Borrower will pay:

(a) FACILITY FEE. A fully earned, non-refundable Facility Fee of
$1,125 due on the Closing Date; and

(b) BANK EXPENSES. All Bank Expenses (including reasonable
attorneys' fees and expenses) incurred through and after the date of this
Agreement, are payable when due.

3. CONDITIONS OF LOANS

2.
<PAGE>

3.1 CONDITIONS PRECEDENT TO INITIAL CREDIT EXTENSION.

Bank's obligation to make the initial Credit Extension is subject to
the condition precedent that it receive the agreements, documents and fees it
requires.

3.2 CONDITIONS PRECEDENT TO ALL CREDIT EXTENSIONS.

Bank's obligations to make each Credit Extension, including the
initial Credit Extension, is subject to the following:

(a) timely receipt of any Payment/Advance Form; and

(b) the representations and warranties in Section 5 must be
materially true on the date of the Payment/Advance Form and on the effective
date of each Credit Extension and no Event of Default may have occurred and be
continuing, or result from the Credit Extension. Each Credit Extension is
Borrower's representation and warranty on that date that the representations and
warranties of Section 5 remain true.

4. CREATION OF SECURITY INTEREST

4.1 GRANT OF SECURITY INTEREST.

Borrower grants Bank a continuing security interest in all presently
existing and later acquired Collateral to secure all Obligations and performance
of each of Borrower's duties under the Loan Documents. Except for Permitted
Liens, any security interest will be a first priority security interest in the
Collateral. Bank may place a "hold" on any deposit account pledged as
Collateral.

5. REPRESENTATIONS AND WARRANTIES

Borrower represents and warrants as follows:

5.1 DUE ORGANIZATION AND AUTHORIZATION.

Borrower and each Subsidiary is duly existing and in good standing in
its state of formation and qualified and licensed to do business in, and in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be qualified.

The execution, delivery and performance of the Loan Documents have been
duly authorized, and do not conflict with Borrower's formation documents, nor
constitute an event of default under any material agreement by which Borrower is
bound. Borrower is not in default under any agreement to which or by which it
is bound in which the default could cause a Material Adverse Change.

3.
<PAGE>

5.2 COLLATERAL.

Borrower has good title to the Collateral, free of Liens except
Permitted Liens. All Inventory is in all material respects of good and
marketable quality, free from material defects.

5.3 LITIGATION.

Except as shown in the Schedule, there are no actions or proceedings
pending or, to Borrower's knowledge, threatened by or against Borrower or any
Subsidiary in which an adverse decision could cause a Material Adverse Change.

5.4 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS.

All consolidated financial statements for Borrower, and any
Subsidiary, delivered to Bank fairly present in all material respects Borrower's
consolidated financial condition and Borrower's consolidated results of
operations. There has not been any material deterioration in Borrower's
consolidated financial condition since the date of the most recent financial
statements submitted to Bank.

5.5 SOLVENCY.

The fair salable value of Borrower's assets (including goodwill minus
disposition costs) exceeds the fair value of its liabilities; the Borrower is
not left with unreasonably small capital after the transactions in this
Agreement; and Borrower is able to pay its debts (including trade debts) as they
mature

5.6 REGULATORY COMPLIANCE.

Borrower is not an "investment company" or a company "controlled" by
an "investment company" under the Investment Company Act. Borrower is not
engaged as one of its important activities in extending credit for margin stock
(under Regulations G, T and U of the Federal Reserve Board of Governors).
Borrower has complied with the Federal Fair Labor Standards Act. Borrower has
not violated any laws, ordinances or rules, the violation of which could cause a
Material Adverse Change. None of Borrower's or any Subsidiary's properties or
assets has been used by Borrower or any Subsidiary or, to the best of Borrower's
knowledge, by previous Persons, in disposing, producing, storing, treating, or
transporting any hazardous substance other than legally. Borrower and each
Subsidiary has timely filed all required tax returns and paid, or made adequate
provision to pay, all taxes, except those being contested in good faith with
adequate reserves under GAAP. Borrower and each Subsidiary has obtained all
consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all government authorities that are necessary to
continue its business as currently conducted.

5.7 SUBSIDIARIES.

Borrower does not own any stock, partnership interest or other equity
securities except for Permitted Investments.

4.
<PAGE>

5.8 FULL DISCLOSURE.

No representation, warranty or other statement of Borrower in any
certificate or written statement given to Bank contains any untrue statement of
a material fact or omits to state a material fact necessary to make the
statements contained in the certificates or statements misleading.

6. AFFIRMATIVE COVENANTS

Borrower will do all of the following:

6.1 GOVERNMENT COMPLIANCE.

Borrower will maintain its and all Subsidiaries' legal existence and
good standing in its jurisdiction of formation and maintain qualification in
each jurisdiction in which the failure to so qualify could have a material
adverse effect on Borrower's business or operations. Borrower will comply, and
have each Subsidiary comply, with all laws, ordinances and regulations to which
it is subject, noncompliance with which could have a material adverse effect on
Borrower's business or operations or cause a Material Adverse Change.

6.2 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES.

(A) Borrower will deliver to Bank: (i) annual cash flow projections
(ii) as soon as available, but no later than 30 days after the last day of each
month, a company prepared consolidated balance sheet and income statement
covering Borrower's consolidated operations during the period, in a form and
certified by a Responsible Officer acceptable to Bank; (iii) as soon as
available, but no later than 120 days after the last day of Borrower's fiscal
year, audited consolidated financial statements prepared under GAAP,
consistently applied, together with an unqualified opinion on the financial
statements from an independent certified public accounting firm acceptable to
Bank; (iv) a prompt report of any legal actions pending or threatened against
Borrower or any Subsidiary that could result in damages or costs to Borrower or
any Subsidiary of $100,000 or more; and (v) budgets, sales projections,
operating plans or other financial information Bank requests.

(b) Within 30 days after the last day of each month, Borrower will
deliver to Bank with the monthly financial statements a Compliance Certificate
signed by a Responsible Officer in the form of Exhibit C.

6.3 INVENTORY; RETURNS.

Borrower will keep all Inventory in good and marketable condition,
free from material defects. Returns and allowances between Borrower and its
account debtors will follow Borrower's customary, practices as they exist at
execution of this Agreement. Borrower must promptly notify Bank of all returns,
recoveries, disputes and claims, that involve more than $50,000.

5.
<PAGE>

6.4 TAXES.

Borrower will make, and cause each Subsidiary to make. timely payment
of all material federal, state, and local taxes or assessments and will deliver
to Bank, on demand, appropriate certificates attesting to the payment.

6.5 INSURANCE.

Borrower will keep its business and the Collateral insured for risks
and in amounts, as Bank requests. Insurance policies will be in a form, with
companies, and in amounts that are satisfactory to Bank. All property policies
will have a lender's loss payable endorsement showing Bank as an additional loss
payee and all liability policies will show the Bank as an additional insured and
provide that the insurer must give Bank at least 20 days notice before canceling
its policy. At Bank's request, Borrower will deliver certified copies of
policies and evidence of all premium payments. Proceeds payable under any
policy will, at Bank's option, be payable to Bank on account of the Obligations.

6.6 PRIMARY ACCOUNTS.

Borrower will maintain its primary depository and operating accounts
with Bank.

6.7 FINANCIAL COVENANTS.

Borrower shall maintain a Liquidity Coverage ratio as follows:

Beginning with the month ended January 31, 1998 and for each of the months
ending February 28, 1998 and March 31, 1998, Borrower shall maintain a minimum
Liquidity Coverage ratio defined as, unrestricted cash plus 50% of Accounts
divided by the Total Potential Liability of 1.25 to 1.00;

Beginning with the month ending April 30, 1998, Borrower shall maintain a
minimum Liquidity Coverage ratio defined as, unrestricted cash plus 50% of
Accounts plus 50% of projected revenue for the following month, divided by the
Total Potential Liability of 1.25 to 1.00, increasing to 1.50 to 1.00 for the
months ending May 31, 1998 and June 30, 1998;

Borrower shall maintain a minimum Liquidity Coverage ratio defined as,
unrestricted cash plus 50% of Accounts divided by the Total Potential Liability
of 1.50 to 1.00 for the month ending July 31, 1998;

Borrower shall maintain a minimum Liquidity Coverage ratio defined as,
unrestricted cash plus 50% of Accounts divided by the Total Potential Liability
of 1.75 to 1.00 for the months ending August 31, 1998 and September 30, 1998;
and

Borrower shall maintain a minimum Liquidity Coverage ratio defined as,
unrestricted cash plus 50% of Accounts divided by the Total Potential Liability
of 2.00 to 1.00 for the months ending October 31, 1998 and thereafter.

6.
<PAGE>

Notwithstanding the foregoing, should Borrower fail to comply with the
above stated Liquidity Coverage ratio, it will not be deemed an Event of
Default, provided Borrower pledges cash to Bank to secure the outstandings under
the Committed Equipment Line until such time as Borrower meets or exceeds the
minimum Liquidity Coverage ratio for such period.

At such time as Borrower achieves two (2) consecutive quarters of
profitability, the minimum Liquidity Coverage ratio will be replaced with a
minimum Debt Service Coverage ratio of 1.50 to 1.00 defined as, net income plus
non-cash expenses plus interest expense, divided by the current portion of
amortizing debt plus interest expense, monitored on a rolling two (2)-quarter
basis.

6.8 FURTHER ASSURANCES.

Borrower will execute any further instruments and take further action
as Bank requests to perfect or continue Bank's security interest in the
Collateral or to effect the purposes of this Agreement.

7. NEGATIVE COVENANTS

Borrower will not do any of the following:

7.1 DISPOSITIONS.

Convey, sell, lease, transfer or otherwise dispose of (collectively
"Transfer"), or permit any of its Subsidiaries to Transfer, all or any part of
its business or property, other than Transfers (i) of Inventory in the ordinary
course of business, (ii) of non-exclusive licenses and similar arrangements for
the use of the property of Borrower or its Subsidiaries in the ordinary course
of business, or (iii) of worn-out or obsolete Equipment.

7.2 CHANGES IN BUSINESS, OWNERSHIP, MANAGEMENT OR BUSINESS LOCATIONS.

Engage in or permit any of its Subsidiaries to engage in any business
other than the businesses currently engaged in by Borrower or have a material
change in its ownership of greater than 25%. Borrower will not, without at
least 30 days prior written notice, relocate its chief executive office or add
any new offices or business locations.

7.3 MERGERS OR ACQUISITIONS.

(i) Merge or consolidate, or permit any of its Subsidiaries to merge
or consolidate, with any other Person, or acquire, or permit any of its
Subsidiaries to acquire, all or substantially all of the capital stock or
property of another Person, if no Event of Default has occurred and is
continuing or would result from such action during the term of this Agreement or
result in a decrease of more than 25% of Tangible Net Worth; or (ii) merge or
consolidate a Subsidiary into another Subsidiary or into Borrower.

7.
<PAGE>

7.4 INDEBTEDNESS.

Create, incur, assume, or be liable for any Indebtedness, or permit
any Subsidiary to do so, other than Permitted Indebtedness.

7.5 ENCUMBRANCE.

Create, incur, or allow any Lien on any of its property, or assign or
convey any right to receive income, including the sale of any Accounts, or
permit any of its Subsidiaries to do so, except for Permitted Liens, or permit
any Collateral not to be subject to the first priority security interest granted
here.

7.6 DISTRIBUTIONS; INVESTMENTS.

Directly or indirectly acquire or own any Person, or make any
Investment in any Person, other than Permitted Investments, or permit any of its
Subsidiaries to do so. Pay any dividends or make any distribution or payment or
redeem, retire or purchase any capital stock without Bank's prior written
consent and provided further, that such payment, distribution, redemption,
retirement or purchase does not cause an Event of Default.

7.7 TRANSACTIONS WITH AFFILIATES.

Directly or indirectly enter or permit any material transaction with
any Affiliate except transactions that are in the ordinary course of Borrower's
business, on terms less favorable to Borrower than would be obtained in an arm's
length transaction with a non-affiliated Person.

7.8 SUBORDINATED DEBT.

Make or permit any payment on any Subordinated Debt, except under the
terms of the Subordinated Debt, or amend any provision in any document relating
to the Subordinated Debt without Bank's prior written consent.

7.9 COMPLIANCE.

Become an "investment company" or a company controlled by an
"investment company," under the Investment Company Act of 1940 or undertake as
one of its important activities extending credit to purchase or carry margin
stock, or use the proceeds of any Advance for that purpose; fail to meet the
minimum funding requirements of ERISA, permit a Reportable Event or Prohibited
Transaction, as defined in ERISA, to occur; fail to comply with the Federal Fair
Labor Standards Act or violate any other law or regulation, if the violation
could have a material adverse effect on Borrower's business or operations or
cause a Material Adverse Change, or permit any of its Subsidiaries to do so.

8. EVENTS OF DEFAULT

Any one of the following is an Event of Default:

8.
<PAGE>

8.1 PAYMENT DEFAULT.

If Borrower fails to pay any of the Obligations;

8.2 COVENANT DEFAULT.

If Borrower does not perform any obligation in Section 6 or violates
any covenant in Section 7 or does not perform or observe any other material
term, condition or covenant in this Agreement, any Loan Documents, or in any
agreement between Borrower and Bank and as to any default under a term,
condition or covenant that can be cured, has not cured the default within 10
days after it occurs, or if the default cannot be cured within 10 days or cannot
be cured after Borrower's attempts within 10 day period, and the default may be
cured within a reasonable time, then Borrower has an additional period (of not
more than 30 days) to attempt to cure the default. During the additional time,
the failure to cure the default is not an Event of Default (but no Credit
Extensions will be made during the cure period);

8.3 MATERIAL ADVERSE CHANGE.

(i) If there occurs a material impairment in the perfection or
priority of the Bank's security interest in the Collateral or in the value of
such Collateral which is not covered by adequate insurance or (ii) if the Bank
determines, based upon information available to it and in its reasonable
judgment, that there is a reasonable likelihood that Borrower will fail to
comply with one or more of the financial covenants in Section 6 during the next
succeeding financial reporting period (subject to the conditions provided
therein).

8.4 ATTACHMENT.

If any material portion of Borrower's assets is attached, seized,
levied on, or comes into possession of a trustee or receiver and the attachment,
seizure or levy is not removed in 10 days, or if Borrower is enjoined,
restrained, or prevented by court order from conducting a material part of its
business or if a judgment or other claim becomes a Lien on a material portion of
Borrower's assets. or if a notice of lien, levy, or assessment is filed against
any of Borrower's assets by any government agency and not paid within 10 days
after Borrower receives notice. These are not Events of Default if stayed or if
a bond is posted pending contest by Borrower (but no Credit Extensions will be
made during the cure period);

8.5 INSOLVENCY.

If Borrower becomes insolvent or if Borrower begins an Insolvency
Proceeding or an Insolvency Proceeding is begun against Borrower and not
dismissed or stayed within 30 days (but no Credit Extensions will be made before
any Insolvency Proceeding is dismissed);

8.6 OTHER AGREEMENTS.

If there is a default in any agreement between Borrower and a third
party that gives the third party the right to accelerate any Indebtedness
exceeding $100,000 or that could cause a Material Adverse Change;

9.
<PAGE>

8.7 JUDGMENTS.

If a money judgment(s) in the aggregate of at least $50,000 is
rendered against Borrower and is unsatisfied and unstayed for 10 days (but no
Advances will be made before the judgment is stayed or satisfied); or

8.8 MISREPRESENTATIONS.

If Borrower or any Person acting for Borrower makes any material
misrepresentation or material misstatement now or later in any warranty or
representation in this Agreement or in any writing delivered to Bank or to
induce Bank to enter this Agreement or any Loan Document.

9. BANK'S RIGHTS AND REMEDIES

9.1 RIGHTS AND REMEDIES.

When an Event of Default occurs and continues Bank may, without notice
or demand, do any or ail of the following:

(a) Declare all Obligations immediately due and payable (but if an
Event of Default described in Section 8.5 occurs all Obligations are immediately
due and payable without any action by Bank);

(b) Stop advancing money or extending credit for Borrower's benefit
under this Agreement or under any other agreement between Borrower and Bank;

(c) Settle or adjust disputes and claims directly with account
debtors for amounts, on terms and in any order that Bank considers advisable;

(d) Make any payments and do any acts it considers necessary or
reasonable to protect its security interest in the Collateral. Borrower will
assemble the Collateral if Bank requires and make it available as Bank
designates. Bank may enter premises where the Collateral is located, take and
maintain possession of any part of the Collateral, and pay, purchase, contest,
or compromise any Lien which appears to be prior or superior to its security
interest and pay all expenses incurred. Borrower grants Bank a license to enter
and occupy any of its premises, without charge, to exercise any of Bank's rights
or remedies;

(e) Apply to the Obligations any (i) balances and deposits of
Borrower it holds, or (ii) any amount held by Bank owing to or for the credit or
the account of Borrower;

(f) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale. and sell the Collateral; and

(g) Dispose of the Collateral according to the Code.

10.
<PAGE>

9.2 POWER OF ATTORNEY.

Effective only when an Event of Default occurs and continues, Borrower
irrevocably appoints Bank as its lawful attorney to: (i) endorse Borrower's name
on any checks or other forms of payment or security; (ii) sign Borrower's name
on any invoice or bill of lading for any Account or drafts against account
debtors, (iii) make, settle, and adjust all claims under Borrower's insurance
policies; (iv) settle and adjust disputes and claims about the Accounts directly
with account debtors, for amounts and on terms Bank determines reasonable; and
(v) transfer the Collateral into the name of Bank or a third party as the Code
permits. Bank may exercise the power of attorney to sign Borrower's name on any
documents necessary to perfect or continue the perfection of any security
interest regardless of whether an Event of Default has occurred. Bank's
appointment as Borrower's attorney in fact, and all of Bank's rights and powers,
coupled with an interest, are irrevocable until all Obligations have been fully
repaid and performed and Bank's obligation to provide Credit Extensions
terminates.

9.3 ACCOUNTS COLLECTION.

When an Event of Default occurs and continues, Bank may notify any
Person owing Borrower money of Bank's security interest in the funds and verify
the amount of the Account. Borrower must collect all payments in trust for Bank
and, if requested by Bank, immediately deliver the payments to Bank in the form
received from the account debtor, with proper endorsements for deposit.

9.4 BANK EXPENSES.

If Borrower fails to pay any amount or furnish any required proof of
payment to third persons Bank may make all or part of the payment or obtain
insurance policies required in Section 6.5, and take any action under the
policies Bank deems prudent. Any amounts paid by Bank are Bank Expenses and
immediately due and payable, bearing interest at the then applicable rate and
secured by the Collateral. No payments by Bank are deemed an agreement to make
similar payments in the future or Bank's waiver of any Event of Default.

9.5 BANK'S LIABILITY FOR COLLATERAL.

If Bank complies with reasonable banking practices it is not liable
for: (a) the safekeeping of the Collateral; (b) any loss or damage to the
Collateral; (c) any diminution in the value of the Collateral; or (d) any act or
default of any carrier, warehouseman, bailee, or other person. Borrower bears
all risk of loss, damage or destruction of the Collateral.

9.6 REMEDIES CUMULATIVE.

Bank's rights and remedies under this Agreement, the Loan Documents,
and all other agreements are cumulative. Bank has all rights and remedies
provided under the Code, by law, or in equity. Bank's exercise of one right or
remedy is not an election, and Bank's waiver of any Event of Default is not a
continuing waiver. Bank's delay is not a waiver, election, or acquiescence. No
waiver is effective unless signed by Bank and then is only effective for the
specific instance and purpose for which it was given.

11.
<PAGE>

9.7 DEMAND WAIVER.

Borrower waives demand, notice of default or dishonor, notice of
payment and nonpayment notice of any default, nonpayment at maturity, release,
compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guarantees held by Bank on which Borrower is
liable.

10. NOTICES

All notices or demands by any party about this Agreement or any other
related agreement must be in writing and be personally delivered or sent by an
overnight delivery service, by certified mail, postage prepaid, return receipt
requested, or by telefacsimile to the addresses set forth at the beginning of
this Agreement. A Party may change its notice address by giving the other Party
written notice

11. CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER

California law governs the Loan Documents without regard to principles of
conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction
of the State and Federal courts in Santa Clara County, California.

BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY CONTEMPLATED
TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS
WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT.
EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

12. GENERAL PROVISIONS

12.1 SUCCESSORS AND ASSIGNS.

This Agreement binds and is for the benefit of the successors and
permitted assigns of each party. Borrower may not assign this Agreement or any
rights under it without Bank's prior written consent which may be granted or
withheld in Bank's discretion. Bank has the right, without the consent of or
notice to Borrower, to sell, transfer, negotiate, or grant participation in all
or any part of, or any interest in, Bank's obligations, rights and benefits
under this Agreement.

12.2 INDEMNIFICATION.

Borrower will indemnify, defend and hold harmless Bank and its
officers, employees, and agents against: (a) all obligations, demands, claims,
and liabilities asserted by any other party in connection with the transactions
contemplated by the Loan Documents; and (b) all losses or Bank Expenses
incurred, or paid by Bank from, following, or consequential to transactions
between Bank and Borrower (including reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.

12.
<PAGE>

12.3 TIME OF ESSENCE.

Time is of the essence for the performance of all obligations in this
Agreement.

12.4 SEVERABILITY OF PROVISION.

Each provision of this Agreement is severable from every other
provision in determining the enforceability of any provision.

12.5 AMENDMENTS IN WRITING, INTEGRATION.

All amendments to this Agreement must be in writing. This Agreement
represents the entire agreement about this subject matter, and supersedes prior
negotiations or agreements. All prior agreements, understandings,
representations, warranties, and negotiations between the parties about the
subject matter of this Agreement merge into this Agreement and the Loan
Documents.

12.6 COUNTERPARTS.

This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and
delivered, are an original, and all taken together, constitute one Agreement.

12.7 SURVIVAL.

All covenants, representations and warranties made in this Agreement
continue in full force while any Obligations remain outstanding. The
obligations of Borrower in Section 12.2 to indemnify Bank will survive until all
statutes of limitations for actions that may be brought against Bank have run.

12.8 CONFIDENTIALITY.

In handling any confidential information, Bank will exercise the same
degree of care that it exercises for its own proprietary information, but
disclosure of information may be made (i) to Bank's subsidiaries or affiliates
in connection with their business with Borrower, (ii) to prospective transferees
or purchasers of any interest in the Loans, (iii) as required by law,
regulation, subpoena, or other order, (iv) as required in connection with Bank's
examination or audit and (v) as Bank considers appropriate exercising remedies
under this Agreement. Confidential information does not include information
that either: (a) is in the public domain or in Bank's possession when disclosed
to Bank, or becomes part of the public domain after disclosure to Bank; or (b)
is disclosed to Bank by a third party, if Bank does not know that the third
party is prohibited from disclosing the information.

13.
<PAGE>

13. DEFINITIONS

13.1 DEFINITIONS.

In this Agreement:

"ACCOUNTS" are all existing and later arising accounts, contract rights,
and other obligations owed Borrower in connection with its sale or lease of
goods (including licensing software and other technology) or provision of
services, all credit insurance, guaranties, other security and all merchandise
returned or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.

"ADVANCE" or "ADVANCES" is a loan advance (or advances) under the Committed
Revolving Line.

"AFFILIATE" of a Person is a Person that owns or controls directly or
indirectly the Person, any Person that controls or is controlled by or is under
common control with the Person, and each of that Person's senior executive
officers, directors, partners and, for any Person that is a limited liability
company, that Person's managers and members.

"BANK EXPENSES" are all audit fees and expenses and reasonable costs or
expenses (including reasonable attorneys' fees and expenses) for preparing,
negotiating, administering, defending and enforcing the Loan Documents
(including appeals or Insolvency Proceedings).

"BORROWER'S BOOKS" are all Borrower's books and records including ledgers,
records regarding Borrower's assets or liabilities, the Collateral, business
operations or financial condition and all computer programs or discs or any
equipment containing the information.

"BUSINESS DAY" is any day that is not a Saturday, Sunday or a day on which
the Bank is closed.

"CASH MANAGEMENT SERVICES" are defined in Section 2.1.2.

"CLOSING DATE" is the date of this Agreement.

"CODE" is the California Uniform Commercial Code.

"COLLATERAL" is the property described on Exhibit A.

"COMMITTED EQUIPMENT LINE" is a Credit Extension of up to $450,000.

"CONTINGENT OBLIGATION" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (ii) any obligations for undrawn letters of credit for the account of
that Person; and (iii) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation

14.
<PAGE>

in interest rates, currency exchange rates or commodity prices; but "Contingent
Obligation" does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may not exceed the maximum of the
obligations under the guarantee or other support arrangement.

"CREDIT EXTENSION" is each Equipment Advance or advance under the Cash
Management Facility or any other extension of credit by Bank for Borrower's
benefit.

"EQUIPMENT" is all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.

"EQUIPMENT ADVANCE" is defined in Section 2.1.3.

"EQUIPMENT AVAILABILITY END DATE" is defined in Section 2.1.3.

"EQUIPMENT MATURITY DATE" is defined in Section 2.1.3.

"ERISA" is the Employment Retirement Income Security Act of 1974, and its
regulations.

"GAAP" is generally accepted accounting principles.

"INDEBTEDNESS" is (a) indebtedness for borrowed money or the deferred price
of property or services, such as reimbursement and other obligations for surety
bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations and (d)
Contingent Obligations.

"INSOLVENCY PROCEEDING" are proceedings by or against any Person under the
United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.

"INVENTORY" is present and future inventory in which Borrower has any
interest, including merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products intended for sale or
lease or to be furnished under a contract of service, of every kind and
description now or later owned by or in the custody or possession, actual or
constructive, of Borrower, including inventory temporarily out of its custody or
possession or in transit and including returns on any accounts or other proceeds
(including insurance proceeds) from the sale or disposition of any of the
foregoing and any documents of title.

"INVESTMENT" is any beneficial ownership of (including stock, partnership
interest or other securities) any Person, or any loan, advance or capital
contribution to any Person.

"LIEN" is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.

15.
<PAGE>

"LOAN DOCUMENTS" are, collectively, this Agreement, any note, or notes or
guaranties executed by Borrower or Guarantor, and any other present or future
agreement between Borrower and/or for the benefit of Bank in connection with
this Agreement, all as amended, extended or restated.

"MATERIAL ADVERSE CHANGE" is defined in Section 8.3.

"OBLIGATIONS" are debts, principal, interest, Bank Expenses and other
amounts Borrower owes Bank now or later, including letters of credit and
Exchange Contracts and including interest accruing after Insolvency Proceedings
begin and debts, liabilities, or obligations of Borrower assigned to Bank.

"PERMITTED INDEBTEDNESS" is:

(a) Borrower's indebtedness to Bank under this Agreement or any
other Loan Document;

(b) Indebtedness existing on the Closing Date and shown on the
Schedule;

(d) Indebtedness to trade creditors incurred in the ordinary course
of business; and

(e) Indebtedness secured by Permitted Liens.

"PERMITTED INVESTMENTS" are:

(a) Investments shown on the Schedule and existing on the Closing
Date; and

(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States or its agency or any State maturing within 1
year from its acquisition, (ii) commercial paper maturing no more than 1 year
after its creation and having the highest rating from either Standard & Poor's
Corporation or Moody's Investors Service, Inc., and (iii) Bank's certificates of
deposit issued maturing no more than 1 year after issue.

"PERMITTED LIENS" are:

(a) Liens existing on the Closing Date and shown on the Schedule or
arising under this Agreement or other Loan Documents;

(b) Liens for taxes, fees, assessments or other government charges
or levies, either not delinquent or being contested in good faith and for which
Borrower maintains adequate reserves on its Books, IF they have no priority over
any of Bank's security interests;

(c) Purchase money Liens (i) on Equipment acquired or held by
Borrower or its Subsidiaries incurred for financing the acquisition of the
Equipment, or (ii) existing on

16.
<PAGE>

equipment when acquired, IF the Lien is confined to the property and
improvements and the proceeds of the equipment;

(d) Leases or subleases and licenses or sublicenses granted in the
ordinary course of Borrower's business and any interest or title of a lessor,
licensor or under any lease or license, IF the leases, subleases, licenses and
sublicenses permit granting Bank a security interest;

(e) Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (c), BUT any extension,
renewal or replacement Lien must be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness may not increase.

"PERSON" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company association, trust, unincorporated
organization, association, corporation, institution, public benefit corporation,
firm, joint stock company, estate, entity or government agency.

"PRIME RATE" is Bank's most recently announced "prime rate," even if it is
not Bank's lowest rate.

"RESPONSIBLE OFFICER" is each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.

"SCHEDULE" is any attached schedule of exceptions.

"SUBORDINATED DEBT" is debt incurred by Borrower subordinated to Borrower's
debt to Bank (and identified as subordinated by Borrower and Bank)-

"SUBSIDIARY" is for any Person, or any other business entity of which more
than 50% of the voting stock or other equity interests is owned or controlled,
directly or indirectly, by the Person or one or more Affiliates of the Person.

"TERM LOAN" is a loan of $242,046.41.

"TOTAL POTENTIAL LIABILITY" is all Obligations under this Agreement or that
certain QuickStart Loan and Security Agreement dated December 20, 1996, (and all
Schedules thereto), between Borrower and Bank and any other Obligations owing by
Borrower to Bank.

17.
<PAGE>

BORROWER:

SCIENTIFIC LEARNING CORPORATION

By: [signature]
-------------------------------
Title:
----------------------------

BANK:

SILICON VALLEY BANK

By: [signature]
-------------------------------
Title:
----------------------------

18.
<PAGE>

EXHIBIT A

The Collateral consists of all of Borrower's right, title and interest in
and to the following:

All goods and equipment now owned or hereafter acquired, including, without
limitation, all machinery, fixtures, vehicles (including motor vehicles and
trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;

All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above;

All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, leases, license agreements, franchise agreements,
blueprints, drawings, purchase orders, customer lists, route lists,
infringements, claims, computer programs, computer discs, computer tapes,
literature, reports, catalogs, design rights, income tax refunds, payments of
insurance and rights to payment of any kind, excluding patent and patent
applications;

All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower;

All documents, cash, deposit accounts, securities, securities entitlements,
securities accounts, investment property, letters of credit, certificates of
deposit, instruments and chattel paper now owned or hereafter acquired and
Borrower's Books relating to the foregoing;

All copyright rights, copyright applications, copyright registrations and
like protections in each work of authorship and derivative work thereof, whether
published or unpublished, now owned or hereafter acquired; all trade secret
rights, including all rights to unpatented inventions, know-how, operating
manuals, license rights and agreements and confidential information, now owned
or hereafter acquired; all mask work or similar rights available for the
protection of semiconductor chips, now owned or hereafter acquired; all claims
for damages by way of any past, present and future infringement of any of the
foregoing. NOTWITHSTANDING (i) THAT GRANTOR HAS GRANTED TO LENDER A SECURITY
INTEREST IN THE UNPATENTED INVENTIONS, TRADEMARKS, COPYRIGHTS, MASK WORKS AND,
(ii) THAT THE UNPATENTED INVENTIONS, TRADEMARKS, MASK WORKS AND COPYRIGHTS ARE
INCLUDED IN THE COLLATERAL, BANK SHALL NOT ENFORCE ITS SECURITY INTEREST IN THE
UNPATENTED INVENTIONS, TRADEMARKS, MASK WORKS, AND COPYRIGHTS, OTHER THAN SOLELY
TO THE EXTENT NECESSARY TO ENABLE FOR BANK TO ENFORCE ITS PERFECTED SECURITY
INTEREST IN THE COLLATERAL OTHER THAT THE UNPATENTED INVENTIONS, TRADEMARKS,
MASK WORKS AND COPYRIGHTS.

All Borrower's Books relating to the foregoing and any and all claims,
rights and interests in any of the above and all substitutions for, additions
and accessions to and proceeds thereof.

1.
<PAGE>

EXHIBIT B

LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM

DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.

TO: CENTRAL CLIENT SERVICE DIVISION DATE:
---------------------------------
FAX#: (408) 496-2426 TIME:
---------------------------------

FROM: SCIENTIFIC LEARNING CORPORATION
----------------------------------------------------------
CLIENT NAME (BORROWER)
REQUESTED BY:
-------------------------------------------------------
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE:
-----------------------------------------------

PHONE NUMBER:
-------------------------------------------------------
FROM ACCOUNT# TO ACCOUNT#
-------------------- ------------------------
REQUESTED TRANSACTION TYPE REQUESTED DOLLAR AMOUNT
-------------------------- -----------------------
PRINCIPAL INCREASE (ADVANCE) $__________________________________
PRINCIPAL PAYMENT (ONLY) $__________________________________
INTEREST PAYMENT (ONLY) $__________________________________
PRINCIPAL AND INTEREST (PAYMENT) $__________________________________

OTHER INSTRUCTIONS:
-------------------------------------------------
All Borrower's representations and warranties in the Loan and
Security Agreement are true, correct and complete in all material
respects on the date of the telephone request for and Advance
confirmed by this Borrowing Certificate; but those representations
and warranties expressly referring to another date shall be true,
correct and complete in all material respects as of that date.

BANK USE ONLY

TELEPHONE REQUEST:
------------------
The following person is authorized to request the loan payment
transfer/loan advance on the advance designated account and is
known to me.

-------------------------------- ----------------------------
Authorized Requester Phone #

-------------------------------- ----------------------------
Received By (Bank) Phone #

----------------------------------------
Authorized Signature (Bank)

<PAGE>

EXHIBIT C

COMPLIANCE CERTIFICATE

TO: SILICON VALLEY BANK
3003 Tasman Drive
Santa Clara, CA 95054

FROM: SCIENTIFIC LEARNING CORPORATION

The undersigned authorized officer of SCIENTIFIC LEARNING CORPORATION
certifies that under the terms and conditions of the Loan and Security Agreement
between Borrower and Bank (the "Agreement"), (i) Borrower is in complete
compliance for the period ending __________ with all required covenants except
as noted below and (ii) all representations and warranties in the Agreement are
true and correct in all material respects on this date. Attached are the
required documents supporting the certification. The Officer certifies that
these are prepared in accordance with Generally Accepted Accounting Principles
(GAAP) consistently applied from one period to the next except as explained in
an accompanying letter or footnotes. The Officer acknowledges that no
borrowings may be requested at any time or date of determination that Borrower
is not in compliance with any of the terms of the Agreement, and that compliance
is determined not just at the date this certificate is delivered.

PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.

REPORTING COVENANT REQUIRED COMPLIES

Monthly financial statements + CC Monthly within 30 days Yes No
Annual (Audited) FYE within 120 days Yes No

FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES

Maintain on a Monthly Basis:

Minimum Liquidity See below ___: 1.00 Yes No
Minimum Debt Service Coverage See below ____:1.00 Yes No

<PAGE>

COMMENTS REGARDING EXCEPTIONS: See Attached. BANK USE ONLY

Sincerely, Received by:
----------------------
AUTHORIZED SIGNER

SCIENTIFIC LEARNING CORPORATION Date:
--------------------------
/s/ FRANK M. MATTSON Verified:
- ------------------------------------ ----------------------
Signature AUTHORIZED SIGNER
CFO Date:
- ------------------------------------ --------------------------
Compliance Status: Yes No
4/15/98
- ------------------------------------
Date

<PAGE>

SILICON VALLEY BANK

PRO FORMA INVOICE FOR LOAN CHARGES

BORROWER: SCIENTIFIC LEARNING CORPORATION

LOAN OFFICER: Greg Olsen

DATE: February 13, 1998
<TABLE>
<S> <C>
Equipment Line Loan Fee $1,125.00
Credit Report 35.00
UCC Filing Fee 20.00

IP Filing Fee *
TOTAL FEE DUE $1,180.00
---------
---------
</TABLE>

* $550.00 TO BE TAKEN FROM LOAN FEE

Please indicate the method of payment:

/ / A check for the total amount is attached.

/X/ Debit DDA # 3300018829 for the total amount.

/ / Loan proceeds

Borrower:

By: /s/ [signature]
------------------------------------------------
(Authorized Signer)

- ----------------------------------------------
Silicon Valley Bank (Date)
Account Officer's Signature

<PAGE>

CORPORATE BORROWING RESOLUTION

Borrower: SCIENTIFIC LEARNING Bank: Silicon Valley Bank
CORPORATION 1731 Embarcadero, Ste. 220
1995 University Avenue, Suite 400 Palo Alto, CA 94303
Berkeley, CA 94704

I, THE UNDERSIGNED SECRETARY OR ASSISTANT SECRETARY OF SCIENTIFIC LEARNING
CORPORATION ("BORROWER"), HEREBY CERTIFY that Borrower is a corporation duly
organized and existing under and by virtue of the laws of the State of De[aware.

I FURTHER CERTIFY that at a meeting of the Directors of Borrower (or by
other duly authorized corporate action in lieu of a meeting), duly called and
held, at which a quorum was present and voting, the following resolutions were
adopted.

BE IT RESOLVED, that ANY ONE (1) of the following named officers,
employees, or agents of Borrower, whose actual signatures are shown below:

NAMES POSITIONS ACTUAL SIGNATURES

- --------------------- ------------------------ ---------------------

acting for and on behalf of Borrower and as its act and deed be, and they hereby
are, authorized and empowered:

BORROW MONEY. To borrow from time to time from Silicon Valley Bank
("Bank"), on such terms as may be agreed upon between the officers of
Borrower and Bank, such sum or sums of money as in their judgment should be
borrowed.

EXECUTE LOAN DOCUMENTS. To execute and deliver to Bank the loan documents
of Borrower, on Bank's forms, at such rates of interest and on such terms
as may be agreed upon, evidencing the sums of money so borrowed or any
indebtedness of Borrower to Bank, and also to execute and deliver to Bank
one or more renewals, extensions, modifications, refinancings,
consolidations, or substitutions for one or more of the loan documents, or
any portion of the loan documents.

GRANT SECURITY. To grant a security interest to Bank in any of Borrower's
assets, which security interest shall secure all of Borrower's obligations
to Bank

NEGOTIATE ITEMS. To draw, endorse, and discount with Bank all drafts,
trade acceptances, promissory notes, or other evidences of indebtedness
payable to or belonging to

<PAGE>
1.

Borrower or in which Borrower may have an interest, and either to receive
cash for the same or to cause such proceeds to be credited to the account
of Borrower with Bank, or to cause such other disposition of the proceeds
derived therefrom as they may deem advisable.

LETTERS OF CREDIT. To execute letter of credit applications and other
related documents pertaining to Bank's issuance of letters of credit.

FOREIGN EXCHANGE CONTRACTS. To execute and deliver foreign exchange
contracts, either spot or forward, from time to time, in such amount as, in
the judgment of the officer or officers herein authorized.

ISSUE WARRANTS. To issue warrants to purchase Borrower's capital stock,
for such class, series and number, and on such terms, as an officer of
Borrower shall deem appropriate.

FURTHER ACTS. In the case of tines of credit, to designate additional or
alternate individuals as being authorized to request advances thereunder,
and in all cases, to do and perform such other acts and things, to pay any
and all fees and costs, and to execute and deliver such other documents and
agreements, including agreements waiving the right to a trial by jury, as
they may in their discretion deem reasonably necessary or proper in order
to carry into effect the provisions of these Resolutions.

BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
Resolutions and performed prior to the passage of these resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Bank may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Bank. Any such notice
shall not affect any of Borrower's agreements or commitments in effect at the
time notice is given.

I FURTHER CERTIFY that the persons named above are principal officers of
the Borrower and occupy the positions set opposite their respective names; that
the foregoing Resolutions now stand of record on the books of the Borrower; and
that they are in full force and effect and have not been modified or revoked in
any manner whatsoever.

IN WITNESS WHEREOF, I have hereunto set my hand on February 13, 1998 and
attest that the signatures set opposite the names listed above are their genuine
signatures.

CERTIFIED TO AND ATTESTED BY:

X
- -------------------------------------
*Secretary or Assistant Secretary

X
- -------------------------------------

* NOTE: In case the Secretary or other certifying officer is designated by
the foregoing resolutions as one of the signing officers, this resolution
should also be signed by a second Officer or Director of Borrower.

<PAGE>

REVOLVING LOAN AGREEMENT

BY AND BETWEEN

SCIENTIFIC LEARNING CORPORATION (THE "BORROWER")
AND

BANKBOSTON, N.A.

(THE "BANK")

DATED AS OF

JUNE 4, 1998

<PAGE>

TABLE OF CONTENTS

PAGE

Section 1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . 2

Section 2. Revolving Credit Facility . . . . . . . . . . . . . . . . . 6

Section 3. Interest. . . . . . . . . . . . . . . . . . . . . . . . . . 7

Section 4. Conversion Options. . . . . . . . . . . . . . . . . . . . . 7

Section 5. Inability to Determine LIBOR Rate . . . . . . . . . . . . . 8

Section 6. Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . 8

Section 7. Illegality. . . . . . . . . . . . . . . . . . . . . . . . . 9

Section 8. Additional Costs, Etc.. . . . . . . . . . . . . . . . . . . 9

Section 9. Changes in Circumstances. . . . . . . . . . . . . . . . . . 10

Section 10. Fees and Payments . . . . . . . . . . . . . . . . . . . . . 10

Section 11. Representations and Warranties. . . . . . . . . . . . . . . 11

Section 12. Conditions Precedent. . . . . . . . . . . . . . . . . . . . 12

Section 13. Covenants . . . . . . . . . . . . . . . . . . . . . . . . . 12

Section 14. Events of Default; Acceleration . . . . . . . . . . . . . . 13

Section 15. Setoff. . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Section 16. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . 15

Section 17. Prejudgment Remedy Waiver . . . . . . . . . . . . . . . . . 16

Section 18. Confidentiality . . . . . . . . . . . . . . . . . . . . . . 16

i.
<PAGE>.

REVOLVING LOAN AGREEMENT

This REVOLVING LOAN AGREEMENT (this "LOAN AGREEMENT") is made as of June 4,
1998, by and between SCIENTIFIC LEARNING CORPORATION, a Delaware corporation
(the "BORROWER"), having its principal place of business at 1995 University
Avenue, Suite 400, Berkeley, California 94704 and, BANKBOSTON, N.A. (the
"BANK"), a national banking association with an office at 81 West Main Street,
Waterbury, Connecticut 06702.

Section 1. DEFINITIONS: Certain capitalized terms are defined below:

AVAILABILITY: With respect to the WPI Loan Agreement, the difference
between the Total Commitment (as defined in the WPI Loan Agreement) minus the
sum of the outstanding Loans (as defined in the WPI Loan Agreement) and the
Letter of Credit Outstandings (as defined in the WPI Loan Agreement).

BASE RATE. The higher of (a) the annual rate of interest announced from
time to time by the Bank at its head office in Boston, Massachusetts, as its
"base rate" and (b) one-half of one percent (1/2%) above the Federal Funds
Effective Rate. For the purposes of this definition, "Federal Funds Effective
Rate" shall mean for any day, the rate per annum equal to the weighted average
of the rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day that is a Business Day, the average of the quotations for such day on such
transactions received by the Bank from three funds brokers of recognized
standing selected by the Bank.

BASE RATE LOANS. Loans bearing interest calculated by reference to the
Base Rate.

BUSINESS DAY: Any day on which banks in Hartford, Connecticut are open for
business generally.

CHARTER DOCUMENTS: With respect to any Person, the certificate or articles
of incorporation or organization and the by-laws of such Person, or other
constitutive documents of such entity.

CLOSING DATE: June 4, 1998.

COMMITMENT: The obligation of the Bank to make Loans to the Borrower up to
an aggregate outstanding principal amount not to exceed $3,000,000, as such
amount may be reduced from time to time or terminated pursuant hereto.

CONSENT: In respect of any Person, any permit, license or exemption from,
approval, consent of, registration or filing with any local, state or federal
governmental or regulatory agency or authority, required under applicable law.

<PAGE>

CONVERSION REQUEST: A notice given to the Bank by the Borrower after
Borrower's election to convert or to continue a Loan in accordance with Section
4 hereof.

DEFAULT: An event or act which, with the giving of notice and/or the
lapse of time, would become an Event of Default.

DISTRIBUTION: The declaration or payment of any dividend on or in respect
of any shares of any class of capital stock of the Borrower or any other
distribution on or in respect of any shares of any class of capital stock of the
Borrower, other than dividends and distributions payable solely in shares of
common stock of the Borrower; the purchase, redemption, or other retirement of
any shares of any class of capital stock of the Borrower, directly or indirectly
through a Subsidiary of the Borrower or otherwise; the return of capital by the
Borrower to its shareholders as such.

DOLLARS OR $: Dollars in lawful currency of the United States of America.

DRAWDOWN DATE: In respect of any Loan, the date on which such Loan is
made to the Borrower.

ENVIRONMENTAL LAWS: All laws pertaining to environmental matters,
including without limitation, the Resource Conservation and Recovery Act, the
Comprehensive Environmental Response Compensation and Liability Act of 1980, the
Superfund Amendments and Reauthorization Act of 1986, the Federal Clean Water
Act, the Federal Clean Air Act, the Toxic Substances Control Act, in each case
as amended, and all rules, regulations, judgments, decrees, orders and licenses
arising under all such laws.

ERISA: The Employee Retirement Income Security Act of 1974, as amended,
and all rules, regulations, judgments, decrees, and orders arising thereunder.

EVENT OF DEFAULT: Any of the events listed in Section 14 hereof.

FINANCIALS: With respect to any Person for any period, the balance sheet
of such Person as at the end of such period, and the related statement of income
and expense and statement of cash flow of such Person for such period, each
setting forth in comparative form the figures for the previous comparable fiscal
period, all in reasonable detail and prepared in accordance with GAAP.

GAAP: Generally accepted accounting principles consistent with those
adopted by the Financial Accounting Standards Board and its predecessor
generally, as in effect from time to time.

GUARANTY: The Guaranty of even date herewith from the Guarantor to the
Bank, as amended from time to time.

<PAGE>

GUARANTOR: WPV, Inc., a Delaware corporation, with its principal place of
business at 466 Lexington Avenue, New York, New York 10017.

INDEBTEDNESS: With respect to any Person, all obligations of such Person,
contingent and otherwise, that in accordance with GAAP should be classified as
liabilities, including without limitation (a) all debt obligations, (b) all
liabilities secured by Liens, (c) all guarantees and (d) all liabilities in
respect of bankers' acceptances or Letters of Credit.

INTEREST PERIOD: With respect to each Loan, (a) initially, the period
commencing on the Drawdown Date of such Loan and ending on the last day of one
of the periods set forth below, as selected by the Borrower in a request for a
Loan (i) for any Base Rate Loan, the last day of the calendar quarter; (ii) for
any LIBOR Rate Loan, 1, 2 or 3 months; and (b) thereafter, each period
commencing on the last day of the next preceding Interest Period applicable to
such Loan and ending on the last day of one of the periods set forth above, as
selected by the Borrower in a Conversion Request; provided that all of the
foregoing provisions relating to Interest Periods are subject to the following:

(A) if any Interest Period with respect to a LIBOR Rate Loan would
otherwise end on a day that is not a LIBOR Business Day, that Interest Period
shall be extended to the next succeeding LIBOR Business Day unless the result of
such extension would be to carry such Interest Period into another calendar
month, in which event such Interest Period shall end on the immediately
preceding LIBOR Business Day;

(B) if any Interest Period with respect to a Base Rate Loan would end on a
day that is not a Business Day, that Interest Period shall end on the next
succeeding Business Day;

(C) if the Borrower shall fail to give notice as provided in Section 4,
the Borrower shall be deemed to have requested a conversion of the affected
LIBOR Rate Loan to a Base Rate Loan on the last day of the then current Interest
Period with respect thereto;

(D) any Interest Period relating to any LIBOR Rate Loan that begins on the
last LIBOR Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such Interest
Period) shall end on the last LIBOR Business Day of a calendar months; and

(E) any Interest Period relating to any LIBOR Rate Loan that would
otherwise extend beyond the Maturity Date shall end on the Maturity Date.

LIENS: Any encumbrance, mortgage, pledge, hypothecation, charge,
restriction or other security interest of any kind securing any obligation of
any Person.

LIBOR BUSINESS DAY: Any day on which commercial banks are open for
international business (including dealings in Dollar deposits) in the London
interbank market.

<PAGE>

LIBOR LENDING OFFICE: Initially, the office of the Bank, if any, that
shall be making or maintaining LIBOR Rate Loans.

LIBOR RATE: For any Interest Period with respect to a LIBOR Rate Loan, the
rate of interest equal to the rate determined by the Bank at which Dollar
deposits for such Interest Period are offered based on information presented on
Telerate Page 3750 as of 11:00 a.m. London time on the second LIBOR Business Day
prior to the first day of such Interest Period.

LIBOR RATE LOANS: Loans bearing interest calculated by reference to the
LIBOR Rate.

LOANS: Any loan made or to be made to the Borrower pursuant to Section 2
hereof, including, without limitation, any Base Rate Loans or LIBOR Loans.

LOAN DOCUMENTS: This Loan Agreement, the Note, the Guaranty and any other
documents, instruments or agreements executed and/or delivered in connection
with this Loan Agreement, in each case as from time to time amended or
supplemented.

MATERIALLY ADVERSE EFFECT: Any materially adverse effect on the financial
condition or business operations of the Borrower or its Subsidiaries or material
impairment of the ability of the Borrower or any of its Subsidiaries to perform
its obligations hereunder or under any of the other Loan Documents, provided,
that under no circumstances shall operating losses of the Borrower and its
Subsidiaries incurred in the ordinary course of business (and which have been
projected by the Borrower prior to the date hereof) constitute a Materially
Adverse Effect hereunder.

MATURITY DATE: May 1, 1999.

NOTE: See Section 2(a).

OBLIGATIONS: All indebtedness, obligations and liabilities of the Borrower
to the Bank, existing on the date of this Loan Agreement or arising thereafter,
direct or indirect, joint or several, absolute or contingent, matured or
unmatured, liquidated or unliquidated, secured or unsecured, arising by
contract, operation, of law or otherwise, arising or incurred under this Loan
Agreement or any other Loan Document or in respect of any of the Loans, the Note
or other instruments at any time evidencing any thereof.

PERSON: Any individual, corporation, partnership, trust, unincorporated
association, business, or other legal entity, any government or any governmental
agency or political subdivision thereof.

REQUIREMENT OF LAW: With respect to any Person, any law, treaty, rule,
regulation or determination of an arbitrator, court, or other governmental
authority, in each case applicable to or binding upon such Person or affecting
any of its property.

<PAGE>

SUBSCRIPTION AGREEMENT: The Amended and Restated put agreement dated as of
February 11, 1998 by and among Warburg Pincus and the Guarantor.

SUBSIDIARY: Any Person with respect to which the Borrower at any time owns
or controls, directly or indirectly, more than fifty percent (50%) of the
outstanding shares of stock or other equity securities or interests having
voting power, regardless of whether such right to vote depends upon the
occurrence of a contingency.

TYPE: As to any Loan, its nature as a Base Rate Loan or a LIBOR Rate Loan.

WARBURG PINCUS: Warburg Pincus Ventures, L.P., a Delaware limited
partnership, a significant shareholder of the Borrower.

WPI EVENT OF DEFAULT: An Event of Default under and as defined in the WPI
Loan Agreement.

WPI LOAN AGREEMENT: The Amended and Restated Revolving Credit and
Reimbursement Agreement dated as of February 11, 1998 among Warburg Pincus, the
Guarantor, The Chase Manhattan Bank and certain lending institutions, as
amended.

WPI LOAN DOCUMENTS: The WPI Loan Agreement and all documents, agreements
and instruments executed in connection therewith, in each case as amended.

Section 2. REVOLVING CREDIT FACILITY.

(a) Upon the terms and subject to the conditions of this Loan
Agreement, the Bank agrees to make Loans to the Borrower that the Borrower may
request from the date hereof until but not including the Maturity Date; PROVIDED
that the sum of the outstanding principal amount of all Loans (after giving
effect to all amounts requested) shall not exceed $50,000 or an integral
multiple thereof. With respect to any Base Rate Loan, the Borrower shall notify
the Bank in writing or telephonically not later than 2:00 p.m. Waterbury time on
the proposed Drawdown Date of such Base Rate Loan being requested, of the
Drawdown Date (which must be a Business Day) and the principal amount of such
Base Rate Loan. With respect to any LIBOR Rate Loan, the Borrower shall notify
the Bank in writing, no less than three (3) LIBOR Business Days prior to the
proposed Drawdown Date of such LIBOR Rate Loan being requested, of the Drawdown
Date (which must be a LIBOR Business Day), the principal amount of such LIBOR
Rate Loan and the Interest Period for such LIBOR Rate Loan. Subject to the
foregoing, so long as the Commitment is then in effect and the conditions set
forth in Section 12 hereof have been met, the Bank shall advance the amount
requested to the Borrower's bank account designated by the Borrower to the Bank
in immediately available funds not later than the close of business on such
Drawdown Date. The obligation of the Borrower to repay to the Bank the
principal of the Loans and interest accrued thereon shall be evidenced by a
promissory note, in the stated principal amount of $3,000,000, executed and
delivered by the Borrower and payable to the order of the Bank, and in
substantially the form attached hereto as EXHIBIT A (the "NOTE").

<PAGE>

(b) Subject to the terms of Section 6 hereof and the terms of any
written cash management agreements between the Bank and the Borrower, the
Borrower may elect to prepay the outstanding principal of all or any part of any
Loan, without premium or penalty, in a minimum amount of $50,000 or an integral
multiple thereof, upon written notice to the Bank given by 2:00 p.m. Hartford
time on the proposed date of such prepayment, of the amount to be prepaid and
the date of such prepayment. The Borrower shall be entitled to reborrow before
the Maturity Date such amounts, upon the terms and subject to the conditions of
this Loan Agreement.

(c) If at any time the outstanding principal amount of the Loans
shall exceed the Commitment, the Borrower shall, immediately upon the Borrower's
receipt of written notice of such excess, pay the amount of such excess to the
Bank for application to the Loans. The Borrower may elect to reduce or
terminate the Commitment by a minimum principal amount of $50,000 or an integral
multiple thereof, upon written notice to the Bank given by 2:00 p.m. Waterbury
time on the proposed date of such reduction or termination. The Borrower shall
not be entitled to reinstate all or any portion of the commitment following such
reduction or termination.

Section 3. INTEREST.

(a) So long as no Event of Default is continuing, the Borrower shall
pay interest on the Loans outstanding as follows:

(i) Each Base Rate Loan shall bear interest for the period
commencing with the Drawdown Date thereof and ending on the last day of the
Interest Period with respect thereto at the rate of the Base Rate.

(ii) Each LIBOR Rate Loan shall bear interest for the period
commencing with the Drawdown Date thereof and ending on the last day of the
Interest Period with respect thereto at the rate of one and three-quarters of
one percent (1.75%) per annum above the LIBOR Rate determined for such Interest
Period.

(iii) Interest on Loans shall be payable in arrears on the last
day of the Interest Period with respect to such Loan. While an Event of Default
is continuing under Section 14(a) hereof, amounts payable with respect to any
Loans shall bear interest (compounded monthly and payable on demand in respect
to overdue amounts) at a rate per annum which is equal to (A) with respect to
each Base Rate Loan, the sum of (1) the Base Rate and (2) two percent (2.0%) and
(B) with respect to each LIBOR Rate Loan, the sum of (1) the LIBOR Rate and (2)
four percent (4.0%), until such amount is paid in full or (as the case may be)
such Event of Default has been cured or waived in writing by the Bank (after as
well as before judgment).

Section 4. CONVERSION OPTIONS.

(a) The Borrower may elect from time to time to convert any
outstanding Loan to a Loan of another Type, provided that (i) with respect to
any such conversion of a LIBOR Rate Loan to a Base Rate Loan, the Borrower shall
give the Bank at least one (1)

<PAGE>

Business Day's prior written notice of such election; (ii) with respect to any
such conversion of a Base Rate Loan to a LIBOR Rate Loan, the Borrower shall
give the Bank at least three (3) LIBOR Business Days' prior written notice of
such election; (iii) with respect to any such conversion of a Base Rate Loan to
a LIBOR Rate Loan, such conversion shall only be made on the last day of the
Interest Period with respect thereto; and (iv) no Loan may be converted into a
LIBOR Rate Loan when any Default or Event of Default has occurred and is
continuing. All or any part of outstanding Loans of any Type may be converted
into a Loan of another type as provided herein, provided that any partial
conversion shall be in an integral multiple thereof. Each Conversion Request
relating to the conversion of a Loan to a LIBOR Rate Loan shall be irrevocable
by the Borrower.

(b) Any Loan of any Type may be continued as a Loan of the same
Type upon the expiration of an Interest Period with respect thereto by
compliance by the Borrower with the notice provisions contained in Section 4(a);
provided that no LIBOR Rate Loan may be continued as such when any Default or
Event of Default has occurred and is continuing, but shall be automatically
converted to a Base Rate Loan on the last day of the first Interest Period
relating thereto ending during the continuance of any Default or Event of
Default of which officers of the Bank active upon the Borrower's account have
actual knowledge.

(c) Any conversion to or from LIBOR Rate Loans shall be in such
amounts and be made pursuant to such elections so that, after giving effect
thereto, the aggregate principal amount of all LIBOR Rate Loans having the same
Interest Period shall not be less than $250,000 or an integral multiple of
$50,000 in excess thereof.

Section 5. INABILITY TO DETERMINE LIBOR RATE. In the event, prior to
the commencement of any Interest Period relating to any LIBOR Rate Loan, the
Bank shall determine that adequate and reasonable methods do not exist for
ascertaining the LIBOR Rate that would otherwise determine the rate of interest
to be applicable to any LIBOR Rate Loan during any Interest Period, the Bank
shall promptly give telephonic notice (promptly confirmed in writing) of such
determination (which shall be conclusive and binding on the Borrower) to the
Borrower. In such event (a) upon receipt of notice, the Borrower may revoke any
pending request for any Loan or Conversion Request with respect to LIBOR Rate
Loans, (b) if the Borrower does not revoke such request or Conversion Request,
the Bank shall make, convert or continue Loans, as proposed by the Borrower, in
the amount specified in the request or the Conversion Request submitted by the
Borrower, but such Loans shall be made, converted or continued as Base Rate
Loans instead of LIBOR Rate Loans, (c) each LIBOR Rate Loan will automatically,
on the last day of the then current Interest Period relating thereto, become a
Base Rate Loan, and (d) the obligations of the Bank to make LIBOR Rate Loans
shall be suspended until the Bank determines that the circumstances giving rise
to such suspension no longer exist, whereupon the Bank shall so notify the
Borrower.

Section 6. INDEMNITY. The Borrower agrees to indemnify Bank and to
hold Bank harmless from and against any loss, cost or expense (including loss of
anticipated profits) that the Bank may sustain or incur as a consequence of (a)
default by the Borrower in payment of the principal amount of or any interest on
any LIBOR Rate Loans as and when due and payable, including any

<PAGE>

such loss or expense arising from interest or fees payable by the Bank to
lenders of funds obtained by it in order to maintain its LIBOR Rate Loans, (b)
default by the Borrower in making a borrowing or conversion after the Borrower
has given (or is deemed to have given) a request for a Loan or a Conversion
Request relating thereto in accordance with Section 4 (other than as a result of
the operation of Section 5 or Section 7 hereof) or (c) the making of any payment
of a LIBOR Rate Loan or the making of any conversion of any such Loan to a Base
Rate Loan on a day that is not the last day of the applicable Interest Period
with respect thereto, including interest or fees payable by the Bank to lenders
of funds obtained by it in order to maintain any such Loans.

Section 7. ILLEGALITY. Notwithstanding any other provisions herein, if
any present or future law, regulation, treaty or directive or in the
interpretation or application thereof shall make it unlawful for the Bank to
make or maintain LIBOR Rate Loans, the Bank shall forthwith give notice of such
circumstances to the Borrower and thereupon (a) the commitment of the Bank to
make LIBOR Rate Loans or convert Loans of another Type to LIBOR Rate Loans shall
forthwith be suspended and (b) the Bank's Loans then outstanding as LIBOR Rate
Loans, if any, shall be converted automatically to Base Rate Loans on the last
day of each Interest Period applicable to such LIBOR Rate Loans or within such
earlier period as may be required by law. The Borrower hereby agrees promptly
to pay the Bank upon demand, any additional amounts necessary to compensate the
Bank for any costs incurred by the Bank in making any conversion in accordance
with this Section 7, including any interest or fees payable by the Bank to
lenders of funds obtained by it in order to make or maintain its LIBOR Loans
hereunder.

Section 8. ADDITIONAL COSTS, ETC. If after the Closing Date any
present or future applicable law, which expression, as used herein, includes
statutes, rules and regulations thereunder and interpretations thereof by any
competent court or by any governmental or other regulatory body or official
charged with the administration or the interpretation thereof and requests,
directives, instructions and notices at any time or from time to time hereafter
made upon or otherwise issued to the Bank by any central bank or other fiscal,
monetary or other authority (whether or not having the force of law), shall:

(a) subject the Bank to any tax, levy, impost, duty, charge, fee,
deduction or withholding of any nature with respect to this Loan Agreement, the
other Loan Documents, the Commitment or the Loans (other than taxes based upon
or measured by the income or profits of the Bank), or

(b) materially change the basis of taxation (except for changes in
taxes on income or profits) of payments to the Bank of the principal of or the
interest on any Loans or any other amounts payable to the Bank under this Loan
Agreement or any of the other Loan Documents, or

(c) impose or increase or render applicable (other than to the extent
specifically provided for elsewhere in this Loan Agreement) any special deposit,
reserve, assessment, liquidity, capital adequacy or other similar requirements
(whether or not having the force of law) against assets held by, or deposits in
or for the account of, or loans by, or letters of credit issued by, or
commitments of an office of the Bank, or

<PAGE>

(d) impose on the Bank any other conditions or requirements with
respect to this Loan Agreement, the other Loan Documents, the Loans, the
Commitment, or any class of loans or commitments of which any of the Loans or
the Commitment forms a part, and the result of any event described in clause
(a), (b), (c) or (d) is

(i) to increase the cost to the Bank of making,
funding, issuing, renewing, extending or maintaining any of the Loans or the
Commitment, or

(ii) to reduce the amount of principal, interest or
other amount payable to the Bank hereunder on account of the Commitment or any
of the Loans, or

(iii) to require the Bank to make any payment or to
forego any interest or other sum payable hereunder, the amount of which payment
or foregone interest or other sum is calculated by reference to the gross amount
of any sum receivable or deemed received by the Bank from the Borrower
hereunder,

then, and in each such case, the Borrower will, upon demand made by the
Bank at any time and from time to time and as often as the occasion therefor may
arise, pay to the Bank such additional amounts as will be sufficient to
compensate the Bank for such additional cost, reduction, payment or foregone
interest or other sum.

Section 9. CHANGES IN CIRCUMSTANCES. If after the Closing Date any
change in banking law or regulation or the administration thereof (whether or
not having the force of law) affects the amount of capital required or expected
to be maintained by the Bank or any entity controlling it, and such amount is
increased by reason of the Commitment or the Loans, the Bank may notify the
Borrower thereof. The Borrower and the Bank shall negotiate an adjustment
payable to the Bank to compensate for such increase. If no agreement is reached
within thirty (30) days, the Bank may increase the fees payable hereunder by the
amount determined by the Bank to be necessary to provide such Compensation.

Section 10. FEES AND PAYMENTS.

(a) The Borrower shall pay to the Bank on the Closing Date a fee in
the amount of $10,000.

(b) The Borrower shall pay to the Bank a commitment fee calculated at
the rate of one-quarter of one percent (1/4%) per annum of the average daily
amount during each calendar quarter or portion thereof from the Closing Date to
the Maturity Date by which the Commitment exceeds the aggregate amount
outstanding under the Loans during such calendar quarter. The commitment fee
shall be payable quarterly in arrears on the first day of each calendar quarter
for the immediately preceding calendar quarter commencing on the first such date
following the Closing Date, with a final payment on the Maturity Date or any
earlier date on which the Commitment shall terminate.

(c) All payments to be made by the Borrower hereunder or under any of
the other Loan Documents shall be made in U.S. dollars in immediately available
funds at the Bank's

<PAGE>

office at 81 West Main Street, Waterbury, Connecticut 06702, without set-off or
counterclaim and without any withholding or deduction whatsoever. The Bank
shall be entitled (but shall not be obligated) to charge any account of the
Borrower with the Bank for any sum due and payable by the Borrower to the Bank,
hereunder or under any of the other Loan Documents. If any payment hereunder is
required to be made on a day which is not a Business Day, it shall be paid on
the immediately preceding Business Day. All computations of interest or of the
closing or commitment fees payable hereunder shall be made by the Bank on the
basis of actual days elapsed and on a 360-day year.

Section 11. REPRESENTATIONS AND WARRANTIES. The Borrower represents and
warrants to the Bank on the date hereof, on the date of any request for any
Loan, and on each Drawdown Date that: (a) the Borrower and each of its
Subsidiaries is duly organized, validly existing, and in good standing under the
laws of its jurisdiction of incorporation and is duly qualified and in good
standing in every other jurisdiction where it is doing business, except where
the failure to so qualify does not have a Materially Adverse Effect on the
Borrower or any of its Subsidiaries, and the execution, delivery and performance
by the Borrower and its Subsidiaries of the Loan Documents (i) are within their
respective corporate authority, (ii) have been duly authorized, (iii) do not
conflict with or contravene their respective Charter Documents; (b) upon
execution and delivery thereof, each Loan Document shall constitute the legal,
valid and binding obligation of the Borrower and each Subsidiary, enforceable in
accordance with its terms except as enforceability is limited by laws regarding
bankruptcy or insolvency or generally the enforcement of creditors' rights and
by general principles of equity; (c) the Borrower and each Subsidiary have good
and marketable title to (or, to the best knowledge of the Borrower after
reasonable inquiry, valid licenses of) all of their respective material
properties, subject only to Liens permitted hereunder, and possess (or to the
best knowledge of the Borrower after reasonable inquiry, have valid licenses
for) all assets, including intellectual properties, franchises and Consents,
adequate for the conduct of their respective businesses as now conducted,
without any conflict with any rights of others; (d) the Borrower has provided to
the Bank its audited Financials as at December 31, 1996 and its unaudited
management prepared Financials as at December 31, 1997 and March 31, 1998, and
such Financials are complete and correct and fairly present the position of the
Borrower and its Subsidiaries as at such dates and for such periods in
accordance with GAAP consistently applied (except, in the case of unaudited
Financials, with respect to the notes thereto and year-end adjustment); (e)
except as otherwise disclosed in writing to the Bank by the Borrower, since
March 31, 1998, there has been no materially adverse change of any kind in the
Borrower or any of its Subsidiaries which would have a Materially Adverse
Effect; (f) there are no legal or other proceedings or investigations pending or
threatened against the Borrower or any of its Subsidiaries before any court,
tribunal or regulatory authority which would, if adversely determined, alone or
together, have a Material Adverse Effect; (g) the execution, delivery,
performance of their respective obligations, and exercise of their respective
rights under the Loan Documents by the Borrower and each Subsidiary, including
borrowing under this Loan Agreement (i) do not require any Consents; and (ii)
are not and will not be in conflict with or prohibited or prevented by (A) any
Requirement of Law, or (B) any Charter Document, corporate minute or resolution,
instrument, agreement or provision thereof, in each case binding on any of them
or affecting any of their respective property; (h) neither the Borrower nor any
Subsidiary is in violation of (i) any Charter Document, corporate minute or

<PAGE>

resolution, (ii) any instrument or agreement, in each case binding on it or
affecting its property, in a manner which would have a Materially Adverse
Effect, or (iii) any Requirement of Law in a manner which would have a
Materially Adverse Effect, including, without limitation, all applicable federal
and state tax laws, ERISA and Environmental Law; (i) the Borrower has no
Subsidiaries and is not a party to any partnership or joint venture, (k) each
fiscal year of the Borrower begins on January 1 of each calendar year and ends
on December 31 of each calendar year; and (1) both before and immediately after
giving effect to the transactions contemplated hereby, the Borrower and each of
its Subsidiaries is and will be solvent on a going concern basis (after taking
into account the value of all tangible and intangible assets, including without
limitation goodwill, patents, trademarks, copyrights and other intellectual
property), has assets (after taking into account the value of all tangible and
intangible assets, including, without limitation, goodwill, patents, trademarks,
copyrights and other intellectual property) having a fair value in excess of the
amount required to pay its probable liabilities on its existing debts as they
become absolute and matured, and has and will have, access to adequate capital
(including the Commitment) (i) for the conduct of its business and (ii) to pay
its debts from time to time incurred in connection therewith as such debts
mature.

Section 12. CONDITIONS PRECEDENT. In addition to the making of the foregoing
representations and warranties and the delivery of the Loan Documents and such
other documents and the taking of such actions as the Bank may reasonably
require at or prior to the time of executing this Loan Agreement, the obligation
of the Bank to make any Loan to the Borrower hereunder is subject to the
satisfaction of the following further conditions precedent: (a) each of the
representations and warranties of the Borrower and the Guarantor to the Bank
shall be true and correct in all material respects as of the time made or
claimed to have been made; (b) no Default or Event of Default shall be
continuing; (c) all proceedings in connection with the transactions contemplated
hereby shall be in form and substance reasonably satisfactory to the Bank, and
the Bank shall have received all information and documents as it may have
reasonably requested; (d) no WPI Event of Default shall be continuing; (e) the
Subscription Agreement shall be in full force and effect; (f) the Guarantor
shall have not less than $3,000,000 of Availability under the WPI Loan Agreement
and (g) counsel to the Borrower shall have provided an opinion letter to the
Bank in form and substance satisfactory to the Bank.

Section 13. COVENANTS.

The Borrower agrees that as long as any Loan or the Note is outstanding and
until the termination of the Commitment and the payment and satisfaction in full
of the Loans and all of the other Obligations, the Borrower will, and where
applicable, will cause each of its Subsidiaries to comply with its obligations
as set forth throughout this Loan Agreement and to:

(a) furnish the Bank: (i) as soon as available but in any event
within one hundred twenty (120) days after the close of each fiscal year, its
audited consolidated Financials for such fiscal year, accompanied by an
unqualified opinion of the Borrower's accountants; (ii) as soon as available but
in any event within forty-five (45) days after the end of each fiscal quarter,
its unaudited consolidated Financials for such quarter, certified by its chief
financial officer; (iii) as soon as available but in any event within thirty
(30) Business Days after the end of each fiscal

<PAGE>

month its unaudited consolidated Financials for such month, certified by its
chief financial officer; and (iv) as soon as available but in any event within
sixty (60) days after the end of each fiscal year, detailed projections of the
Borrower and its Subsidiaries for the next succeeding year setting forth
anticipated income, expenses and capital expenditures, such projections to be in
form and detail satisfactory to the Bank;

(b) keep true and accurate books of account in accordance with GAAP
and, upon reasonable prior notice and at reasonable intervals (unless a Default
or an Event of Default shall be continuing, whereupon such notice shall not be
required), to permit the Bank or its designated representatives (at the expense
of the Borrower if a Default or Event of Default has occurred and is continuing
and at the expense of the Bank at all other times), to inspect the Borrower's
premises, activities, books and records, to examine and be advised as to such or
other business records upon the request of the Bank and cause Borrower's
officers and employees to give full cooperation and assistance in connection
therewith;

(c) maintain its corporate existence, business and assets, to keep
its business and assets adequately insured, to maintain its chief executive
office in the United States, to continue to engage in substantially the same
lines of business or businesses related thereto, and to comply in all material
respects with all Requirements of Law, including ERISA and Environmental Laws;

(d) notify the Bank promptly in writing (i) of the occurrence of any
Default or Event of Default, (ii) of any noncompliance with ERISA or any
Environmental Law or proceeding in respect thereof which could have a Materially
Adverse Effect, (iii) of any change of address or name of the Borrower or any of
its Subsidiaries, (iv) of any threatened or pending litigation or similar
proceeding affecting the Borrower or any of its Subsidiaries involving claims in
excess of $250,000 in the aggregate or any material change in any such
litigation or proceeding previously reported, or (v) of claims in excess of
$250,000 in the aggregate against any assets or properties of the Borrower or
any of its Subsidiaries encumbered in favor of the Bank;

(e) use the proceeds of the Loans for working capital purposes, and
not for the purchasing or carrying of "margin security" or "margin stock" within
the meaning of Regulations U and X of the Board of Governors of the Federal
Reserve System, 12 C.F.R. Parts 221 and 224; and

(f) cooperate with the Bank, take such action, execute such
documents, and provide such information as the Bank may from time to time
reasonably request in order further to effect the transactions contemplated by
and the purposes of the Loan Documents.

Section 14. EVENTS OF DEFAULT; ACCELERATION. If any of the following
events ("Events of Default") shall occur: (a) the Borrower shall fail to pay
within five (5) days of when due and payable any principal of or interest on the
Loans or any other sum due under any of the Loan Documents; (b) the Guarantor
shall fail to comply with any term or condition set forth in its Guaranty
without the prior written consent of the Bank (except if the Obligations have
been paid in full in cash and the Commitment has terminated); (d) the Borrower
or any of its Subsidiaries

<PAGE>

or the Guarantor shall fail to perform any other term, covenant or agreement
contained in the Loan Documents within thirty (30) days after the Bank has given
written notice of such failure to the Borrower; (e) any representation or
warranty of the Borrower, any of its Subsidiaries or the Guarantor in the Loan
Documents or in any certificate or notice given in connection therewith shall
have been false or misleading in any material respect at the time made or deemed
to have been made; (f) the Borrower, any of its Subsidiaries or the Guarantor
shall fail to pay when due or within any applicable period of grace any
Indebtedness owing to the Bank or any affiliates of the Bank or any other
Indebtedness for borrowed money to any other third party in an aggregate
principal amount greater than $500,000; (g) any of the Loan Documents shall
cease to be in full force and effect; (h) the Borrower, any of its Subsidiaries
or the Guarantor (i) shall make an assignment for the benefit of creditors, (ii)
shall be adjudicated bankrupt or insolvent, (iii) shall seek the appointment of,
or be the subject of an order appointing, a trustee, liquidator or receiver as
to all or part of its assets, (iv) shall commence, approve or consent to, any
case or proceeding under any bankruptcy, reorganization or similar law and, in
the case of an involuntary case or proceeding, such case or proceeding is not
dismissed within forty-five (45) days following the commencement thereof, or (v)
shall be the subject of an order for relief in an involuntary case under federal
bankruptcy law; (i) the Borrower, any of its Subsidiaries or the Guarantor shall
be unable to pay debts as they mature; (j) there shall remain undischarged for
more than thirty (30) days any final judgment or execution action against the
Borrower, any of its Subsidiaries or the Guarantor that, together with other
outstanding claims and execution actions against the Borrower, such Subsidiary
or the Guarantor, exceeds $500,000 in the aggregate; (k) a WPI Event of Default
shall have occurred and be continuing; (1) the Subscription Agreement shall
terminate or cease to be in full force and effect; or (m) the Availability under
the WPI Loan Agreement shall be less than $3,000,000 at any time;

THEN, or at any time thereafter:

(1) In the case of any Event of Default under clause (h) or (i), the
Commitment shall automatically terminate, and the entire unpaid principal amount
of the Loans, all interest accrued and unpaid thereon, and all other amounts
payable hereunder and under the other Loan Documents shall automatically become
forth with due and payable, without presentment, demand, protest or notice of
any kind, all of which are hereby expressly waived by the Borrower; and

(2) In the case of any Event of Default other than (h) and (i), the Bank
may, by written notice to the Borrower, terminate the Commitment and/or declare
the unpaid principal amount of the Loans, all interest accrued and unpaid
thereof, and all other amounts payable hereunder and under the other Loan
Documents to be forthwith due and payable, without presentment, demand, protest
or further notice of any kind, all of which are hereby expressly waived by the
Borrower.

<PAGE>

No remedy herein conferred upon the Bank is intended to be exclusive of any
other remedy and each and every remedy shall be cumulative and in addition to
every other remedy hereunder, now or hereafter existing at law or in equity or
otherwise.

Section 15. SETOFF. Regardless of the adequacy of any collateral for
the Obligations, any deposits or other sums credited by or due from the Bank
to the Borrower may be applied to or set off against any principal, interest
and any other amounts due from the Borrower to the Bank at any time without
notice to the Borrower, or compliance with any other procedure imposed by
statute or otherwise, all of which are hereby expressly waived by the
Borrower.

Section 16. MISCELLANEOUS. The Borrower agrees to indemnify and hold
harmless the Bank against all claims and losses of every kind arising out of the
Loan Documents, including without limitation against those in respect of the
application of Environmental Laws to the Borrower and its Subsidiaries;
provided, however, Borrower shall not be obligated to indemnify the Bank from,
and hold it harmless against, any such claims or losses arising out of the gross
negligence or willful misconduct of the Bank. The Borrower shall pay to the
Bank promptly on demand all reasonable costs and expenses (including any taxes
and legal and other professional fees and fees of its commercial finance
examiner) incurred by the Bank in connection with the preparation, negotiation,
execution, amendment, administration or enforcement of any of the Loan
Documents. Any communication to be made hereunder shall (i) be made in writing,
but unless otherwise stated, may be made by telex, facsimile transmission or
letter, and (ii) be made or delivered to the address of the party receiving
notice which is identified with its signature below (unless such party has by
five (5) days' written notice specified another address), and shall be deemed
made or delivered, when dispatched or transmitted (in the case of facsimiles),
left at that address, or five (5) days after being mailed, postage prepaid, to
such address. This Loan Agreement shall be binding upon and inure to the
benefit of each party hereto and its successors and assigns, but the Borrower
may not assign its rights or obligations hereunder. This Loan Agreement may not
be amended or waived except by a written instrument signed by the Borrower and
the Bank, and any such amendment or waiver shall be effective only for the
specific purpose given. No failure or delay by the Bank to exercise any right
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or privilege preclude any other right, power or
privilege. The provisions of this Loan Agreement are severable and if any one
provision hereof shall be held invalid or unenforceable in whole or in part in
any jurisdiction, such invalidity or unenforceability shall affect only such
provision in such jurisdiction. This Loan Agreement, together with all Exhibits
and Schedules hereto, expresses the entire understanding of the parties with
respect to the transactions contemplated hereby. This Loan Agreement and any
amendment hereby may be executed in several counterparts, each of which shall be
an original, and all of which shall constitute one agreement. In proving this
Loan Agreement, it shall not be necessary to produce more than one such
counterpart executed by the party to be charged. THIS LOAN AGREEMENT AND THE
NOTE ARE CONTRACTS UNDER THE LAWS OF THE STATE OF CONNECTICUT AND SHALL BE
CONSTRUED IN ACCORDANCE THEREWITH AND GOVERNED THEREBY. THE BORROWER AGREES
THAT ANY SUIT FOR THE ENFORCEMENT OF ANY OF THE LOAN DOCUMENTS MAY BE BROUGHT IN
THE COURTS OF THE STATE OF CONNECTICUT OR ANY FEDERAL COURT SITTING THEREIN.
The Borrower, as an

<PAGE>

inducement to the Bank to enter into this Loan Agreement, hereby waives its
right to a jury trial with respect to any action arising in connection with any
Loan Document.

Section 17. PREJUDGMENT REMEDY WAIVER. THE BORROWER ACKNOWLEDGES THAT
THE FINANCING EVIDENCED HEREBY IS A COMMERCIAL TRANSACTION WITHIN THE MEANING
OF CHAPTER 903a OF THE CONNECTICUT GENERAL STATUTES. THE BORROWER HEREBY
WAIVES ITS RIGHT TO NOTICE AND PRIOR COURT HEARING OR COURT ORDER UNDER
CONNECTICUT GENERAL STATUTES SECTIONS 52-278a ET. SEQ. AS AMENDED OR UNDER
ANY OTHER STATE OR FEDERAL LAW WITH RESPECT TO ANY AND ALL PREJUDGMENT
REMEDIES THE BANK MAY EMPLOY TO ENFORCE ITS RIGHTS AND REMEDIES HEREUNDER.
MORE SPECIFICALLY, THE BORROWER ACKNOWLEDGES THAT THE BANK'S ATTORNEY MAY,
PURSUANT TO CONN. GEN. STAT. Section 52-278F, ISSUE A WRIT FOR A PREJUDGMENT
REMEDY WITHOUT SECURING A COURT ORDER. THE BORROWER ACKNOWLEDGES AND
RESERVES ITS RIGHT TO NOTICE AND A HEARING SUBSEQUENT TO THE ISSUANCE OF A
WRIT FOR PREJUDGMENT REMEDY AS AFORESAID AND THE BANK ACKNOWLEDGES THE
BORROWER'S RIGHT TO SAID HEARING SUBSEQUENT TO THE ISSUANCE OF SAID WRIT.

Section 18. CONFIDENTIALITY. The Bank agrees to take normal and
reasonable precautions and exercise due care to maintain the confidentiality
of all information identified as "confidential" or "secret" by the Borrower
and provided to it by the Borrower or any of its Subsidiaries under this Loan
Agreement or any of other Loan Document, and the Bank shall not use any such
information other than in connection with or in the administration or
enforcement of this Loan Agreement and the other Loan Documents, except to
the extent such information (i) was or becomes generally available to the
public other than as a result of disclosure by the Bank, (ii) was or becomes
available on a non-confidential basis from a source other than the Borrower;
provided, that such source is not bound by a confidentiality agreement with
the Borrower known to the officers of the Bank handling the transaction
contemplated hereby; and provided, further, that the Bank may disclose such
information (A) at the request or pursuant to any requirement of any
governmental authority or regulator to which the Bank is subject or in
connection with an examination of the Bank-by any such-authority or
regulator, (B) pursuant to subpoena or other court process, (c) when required
to do so in accordance with the provisions of any applicable law, (D) to the
extent reasonably required in connection with any litigation or proceeding to
which the Bank may be party, (E) to the extent reasonably required in
connection with the exercise of any remedy hereunder or under any other Loan
Document, (F) to the Bank's independent auditors, attorneys, accountants and
other professional advisors, (G) to any affiliate of the Bank provided that
such Person agrees in writing to keep such information confidential to the
same extent required of the Bank hereunder and (H) in accordance with Robert
Morris Associates guidelines.

<PAGE>

IN WITNESS WHEREOF, the undersigned have duly executed this Loan Agreement
as of the date first above written.

SCIENTIFIC LEARNING CORPORATION

By: /S/ Sheryle J. Bolton
-----------------------------------------
Sheryle J. Bolton
Its: President and Chief Executive Officer
1995 University Avenue, Suite 400
Berkeley, California 94704
Attention: Sheryle J. Bolton
President and Chief Executive Officer

Tel: (510) 665-9700
Fax: (510) 665-1717

BANKBOSTON, N.A.

By: [Signature]
-----------------------------------------
Garth Collins
Its: Vice President
81 West Main Street Waterbury,
Connecticut 06702

Tel: (203) 575-3946
Fax: (203) 574-7599

<PAGE>

EXHIBIT A

REVOLVING CREDIT NOTE

SCIENTIFIC LEARNING CORPORATION

$3,000,000.00 Dated as of June 4, 1998

FOR VALUE RECEIVED, the undersigned, SCIENTIFIC LEARNING CORPORATION, a
Delaware corporation (hereinafter, together with its successors in title and
assigns, called the "Borrower"), promises to pay, on or before the Maturity Date
(as hereinafter defined by reference) to the order of BANKBOSTON, N.A., a
national banking association (hereinafter, together with its successors in title
and assigns, called the "Bank"), at the office of the Bank at 81 West Main
Street, Waterbury, Connecticut 06702, the principal sum of THREE MILLION AND
00/100 DOLLARS ($3,000,000.00), in immediately available funds or, if less, the
aggregate unpaid principal amount of the Loans made by the Bank to the Borrower
pursuant to the Revolving Loan Agreement to which reference is hereinafter made
and to pay interest, in like money, on the unpaid principal amount owing
hereunder from time to time from the date hereof until payment in full of such
principal amount as provided in the Revolving Loan Agreement.

This Note is made and delivered by the Borrower pursuant to Section 2 of
the Revolving Loan Agreement dated of even date herewith by and between the
Borrower and the Bank (as amended and in effect from time to time, the
"Revolving Loan Agreement"), and is entitled to the benefits and is subject
to the provisions of the Revolving Loan Agreement. All capitalized terms
used herein which are defined in the Revolving Loan Agreement shall have the
same meanings herein as therein.

The Borrower also promises to pay interest on the aggregate unpaid
principal amount of the Loans outstanding until paid in full at the rates per
annum set forth in or established pursuant to the Revolving Loan Agreement.
Such interest shall be payable on such dates as are determined from time to time
pursuant to the Revolving Loan Agreement and shall be calculated as therein
provided.

The Borrower has the right to prepay the principal of this Note on the
terms and conditions specified in the Revolving Loan Agreement.

If any Event of Default shall occur, the entire unpaid principal amount of
this Note and all of the unpaid interest accrued thereon may become or be
declared due and payable in the manner and with the effect provided in the
Revolving Loan Agreement.

<PAGE>

The Borrower and all guarantors and endorsers hereby waive presentment,
demand, protest and notice of any kind in connection with the delivery,
acceptance, performance and enforcement of this Note, and also hereby assent to
extensions of time of payment or forbearance or other indulgences without
notice.

This Note and the obligations of the Borrower hereunder shall be governed
by, and interpreted and determined in accordance with, the laws of the State of
Connecticut.

THE BORROWER HEREBY REPRESENTS, COVENANTS AND AGREES THAT THE PROCEEDS OF
THE LOANS SHALL BE USED FOR GENERAL COMMERCIAL PURPOSES AND THAT THIS NOTE IS
PART OF A "COMMERCIAL TRANSACTION" AS DEFINED BY THE STATUTES OF THE STATE OF
CONNECTICUT. THE BORROWER HEREBY WAIVES ALL RIGHTS TO NOTICE AND PRIOR COURT
HEARING OR COURT ORDER UNDER CONNECTICUT GENERAL STATUES SECTIONS 52-278A ET
SEQ. AS AMENDED OR UNDER ANY OTHER STATE OR FEDERAL LAW WITH RESPECT TO ANY AND
ALL PREJUDGMENT REMEDIES THE BANK MAY EMPLOY TO ENFORCE ITS RIGHTS AND REMEDIES
HEREUNDER. MORE SPECIFICALLY, THE BORROWER ACKNOWLEDGES THAT BANK'S ATTORNEY
MAY, PURSUANT TO CONNECTICUT GENERAL STATUES, SECTION 52-278F, ISSUE A WRIT FOR
A PREJUDGMENT REMEDY WITHOUT SECURING A COURT ORDER. THE BORROWER ACKNOWLEDGES
AND RESERVES ITS RIGHT TO NOTICE AND A HEARING SUBSEQUENT TO THE ISSUANCE OF A
WRIT FOR PREJUDGMENT REMEDY BY BANK'S ATTORNEY. THE BANK ACKNOWLEDGES THE
BORROWER'S RIGHT TO SAID HEARING SUBSEQUENT TO THE ISSUANCE OF SAID WRIT.

IN WITNESS WHEREOF, the Borrower has caused this Note to be signed in its
corporate name by its duly authorized officer on the day and in the year first
above written.

SCIENTIFIC LEARNING CORPORATION

By: /s/ Sheryle J. Bolton
------------------------------------

Its: President

<PAGE>

LEASE AGREEMENT

BETWEEN

GBC-UNIVERSITY AVENUE ASSOCIATES, L.P.
AS "LANDLORD"

AND

SCIENTIFIC LEARNING CORPORATION, A DELAWARE CORPORATION
AS "TENANT"

<PAGE>

TABLE OF CONTENTS
<TABLE>
<CAPTION>

SECTION PAGE
<S> <C> <C>
1. PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. TERM; POSSESSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3. RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4. SECURITY DEPOSIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5. USE AND COMPLIANCE WITH LAWS . . . . . . . . . . . . . . . . . . . . . . 8
6. TENANT IMPROVEMENTS & ALTERATIONS . . . . . . . . . . . . . . . . . . . 10
7. MAINTENANCE AND REPAIRS . . . . . . . . . . . . . . . . . . . . . . . . 12
8. TENANT'S TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
9. UTILITIES AND SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . 13
10. EXCULPATION AND INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . 15
11. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
12. DAMAGE OR DESTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . 18
13. CONDEMNATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
14. ASSIGNMENT AND SUBLETTING . . . . . . . . . . . . . . . . . . . . . . . 21
15. DEFAULT AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . 24
16. LATE CHARGE AND INTEREST . . . . . . . . . . . . . . . . . . . . . . . . 26
17. WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
18. ENTRY, INSPECTION AND CLOSURE . . . . . . . . . . . . . . . . . . . . . 27
19. SURRENDER AND HOLDING OVER . . . . . . . . . . . . . . . . . . . . . . . 27
20. ENCUMBRANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
21. ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS . . . . . . . . . . . . . 29
22. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
23. ATTORNEYS' FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
24. QUIET POSSESSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
25. SECURITY MEASURES . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
26. FORCE MAJEURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
27. RULES AND REGULATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 31
28. LANDLORD'S LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . 31
29. CONSENTS AND APPROVALS . . . . . . . . . . . . . . . . . . . . . . . . . 32
30. BROKERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
</TABLE>

i.
<PAGE>

TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>

SECTION PAGE
<S> <C> <C>
31. INTENTIONALLY OMITTED . . . . . . . . . . . . . . . . . . . . . . . . . 32
32. ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
33. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
34. AUTHORITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
</TABLE>

ii.
<PAGE>

BASIC LEASE INFORMATION

LEASE DATE: For identification purposes only, the date of this
Lease is July 31, 1997

LANDLORD: GBC-University Associates, L.P.

TENANT: Scientific Learning Corporation, a Delaware corporation

PROJECT: Golden Bear Center Building

BUILDING ADDRESS: 1995 University Avenue, Berkeley, California

RENTABLE AREA OF
BUILDING: 160,587 square feet

PREMISES: Floor: Fourth (4th)
Suite Number: 400
Rentable Area: 34,257

TERM: 60 full calendar months (plus any partial month at the
beginning of the Term)

SCHEDULED
COMMENCEMENT DATE: September 1, 1997

EXPIRATION DATE: The last day of the 60th full calendar month in the
Term

BASE RENT: Month 01-12 $56,524.05 per month
Month 13-24 $73,652.20 per month
Month 25-36 $77,078.25 per month
Month 37-48 $80,503.95 per month
Month 49-60 $83,929.65 per month

BASE YEAR: The calendar year 1997

TENANT'S SHARE: Twenty-one and thirty-three hundredths percent (21.33%)

SECURITY DEPOSIT: Eighty-three thousand three hundred and forty-six
dollars ($83,346.00), and the Letter of Credit
referenced in Section 3 of Exhibit D

LANDLORD'S ADDRESS
FOR PAYMENT OF RENT: GBC-University Associates, L.P.
File #72846
P.O. Box 61000
San Francisco, CA 94161-2846

BUSINESS HOURS: 7:30 a.m. to 6:00 p.m.

1.
<PAGE>

LANDLORD'S ADDRESS
FOR NOTICES: William Wilson & Associates
1390 Willow Pass Road, Suite 320
Concord, CA 94520-5240

with a copy to:

William Wilson & Associates
2929 Campus Drive, Suite 450
San Mateo, CA 94403

TENANT'S ADDRESS
FOR NOTICES: At the Premises

ACCESS CARD DEPOSIT: Waived per Section 25

BROKER(S): Colliers Damner Pike

GUARANTOR(S): N/A

PROPERTY MANAGER: William Wilson & Associates

ADDITIONAL PROVISIONS: (1) Parking (2) Extension Option (3) Letter of Credit

EXHIBITS:

Exhibit A: The Premises
Exhibit B: Construction Rider
Exhibit C: Building Rules
Exhibit D: Additional Provisions

The Basic Lease Information set forth above is part of the Lease. In the
event of any conflict between any provision in the Basic Lease Information and
the Lease, the Lease shall control.

THIS LEASE is made as of the Lease Date set forth in the Basic Lease
Information, by and between the Landlord identified in the Basic Lease
Information ("Landlord"), and the Tenant identified in the Basic Lease
Information ("Tenant"). Landlord and Tenant hereby agree as follows:

1. PREMISES. Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord, upon the terms and subject to the conditions of this Lease, the office
space identified in the Basic Lease Information as the Premises (the
"PREMISES"), in the Building located at the address specified in the Basic Lease
Information (the "BUILDING"). The approximate configuration and location of the
Premises is shown on EXHIBIT A. Landlord and Tenant agree that the rentable
area of the Premises for all purposes under this Lease shall be the Rentable
Area specified in the Basic Lease Information. The Building, together with the
parking facilities serving the Building (the "PARKING FACILITY"), and the
parcel(s) of land on which the Building and the Parking

2.
<PAGE>

Facility are situated (collectively, the "PROPERTY"), is part of the Project
identified in the Basic Lease Information (the "PROJECT").

2. TERM; POSSESSION. The term of this Lease (the "TERM") shall commence on
the Commencement Date as described below and, unless sooner terminated, shall
expire on the Expiration Date set forth in the Basic Lease Information (the
"EXPIRATION DATE"). The "COMMENCEMENT DATE" shall be the earlier of (a) the
date on which Landlord tenders possession of the Premises to Tenant, with all of
Landlord's construction obligations, if any, "SUBSTANTIALLY COMPLETED" as
provided in the Construction Rider attached as EXHIBIT B (the "CONSTRUCTION
RIDER") or, in the event of any "TENANT DELAY," as defined in the Construction
Rider, the date on which Landlord could have done so had there been no such
Tenant Delay; or (b) the date upon which Tenant, with Landlord's written
permission, actually occupies and conducts business in any portion of the
Premises. The parties anticipate that the Commencement Date will occur on or
about the Scheduled Commencement Date set forth in the Basic Lease Information
(the "SCHEDULED COMMENCEMENT DATE"); PROVIDED, HOWEVER, that Landlord shall not
be liable for any claims, damages or liabilities if the Premises are not ready
for occupancy by the Scheduled Commencement Date. When the Commencement Date
has been established, Landlord and Tenant shall at the request of either party
confirm the Commencement Date and Expiration Date in writing.

3. RENT.

3.1 BASE RENT. Tenant agrees to pay to Landlord the Base Rent set forth
in the Basic Lease Information, without prior notice or demand, on the first day
of each and every, calendar month during the Term, except that Base Rent for the
first full calendar month in which Base Rent is payable shall be paid upon
Tenant's execution of this Lease and Base Rent for any partial month at the
beginning of the Term shall be paid on the Commencement Date. Base Rent for any
partial month at the beginning or end of the Term shall be prorated based on the
actual number of days in the month.

If the Basic Lease Information provides for any change in Base Rent by
reference to years or months (without specifying particular dates), the change
will take effect on the applicable annual or monthly anniversary of the
Commencement Date (which won't necessarily be the first day of a calendar
month).

3.2 ADDITIONAL RENT: INCREASES IN OPERATING COSTS AND TAXES.

(a) DEFINITIONS.

(1) "BASE OPERATING COSTS" means Operating Costs for the
calendar year specified as the Base Year in the Basic Lease Information
(excluding therefrom, however, any Operating Costs of a nature that would not
ordinarily be incurred on an annual, recurring basis).

(2) "BASE TAXES" means Taxes for the calendar year specified as
the Base Year in the Basic Lease Information.

3.
<PAGE>

(3) "OPERATING COSTS" means, subject to the exclusions below,
all costs of managing, operating, maintaining and repairing the Property,
including all costs, expenditures, fees and charges for: (A) operation,
maintenance and repair of the Property (including maintenance, repair and
replacement of glass, the roof covering or membrane, and landscaping); (B)
utilities and services (including telecommunications facilities and equipment,
recycling programs and trash removal), and associated supplies and materials;
(c) compensation (including employment taxes and fringe benefits) for persons
who perform duties in connection with the operation, management, maintenance and
repair of the Building, such compensation to be appropriately allocated for
persons who also perform duties unrelated to the Building, up to and including
the grade of Building Manager; (D) property (including coverage for earthquake
and flood if carried by Landlord), liability, rental income and other insurance
relating to the Property, and expenditures for deductible amounts paid under
such insurance; (E) licenses, permits and inspections; (F) complying with the
requirements of any law, statute, ordinance or governmental rule or regulation
or any orders pursuant thereto (collectively "LAWS"); (G) amortization of
capital improvements required to comply with Laws, or which are intended to
reduce Operating Costs or improve the utility, efficiency or capacity of any
Building System, with interest on the unamortized balance at the rate paid by
Landlord on funds borrowed to finance such capital improvements (or, if Landlord
finances such improvements out of Landlord's funds without borrowing, the rate
that Landlord would have paid to borrow such funds, as reasonably determined by
Landlord), over such useful life as Landlord shall reasonably determine; (H) an
office in the Project for the management of the Property, including expenses of
furnishing and equipping such office in a commercially reasonable manner, and
the rental value of any space occupied for such purposes; (I) property
management fees at commercially reasonable rates, generally commensurate with
management fees charged for similar scope and quality of services for other
buildings in the vicinity of the Building, of comparable size, quality and age
as the Building; (J) accounting, legal and other professional services incurred
in connection with the operation of the Property and the calculation of
Operating Costs and Taxes; (K) a reasonable allowance for depreciation on
machinery and equipment used to maintain the Property and on other personal
property owned by Landlord in the Property (including window coverings and
carpeting in common areas); (L) contesting the validity or applicability of any
Laws that may affect the Property; (M) the Building's share of any shared or
common area maintenance fees and expenses (including costs and expenses of
operating, managing, owning and maintaining the Parking Facility and the common
areas of the Project and any fitness center or conference center in the
Project); and (N) any other cost, expenditure, fee or charge, whether or not
hereinbefore described, which in accordance with generally accepted property
management practices would be considered an expense of managing, operating,
maintaining and repairing the Property. Operating Costs for any calendar year,
including the Base Year, during which average occupancy of the Building is less
than one hundred percent (100%) shall be calculated based upon the Operating
Costs that would have been incurred if the Building had an average occupancy of
one hundred percent (100%) during the entire calendar year.

Operating Costs shall not include (i) capital improvements (except as
otherwise provided above); (ii) costs of special services rendered to individual
tenants (including Tenant) for which a special charge is made; (iii) interest
and principal payments on loans or indebtedness secured by the Building; (iv)
costs of improvements for Tenant or other tenants of the

4.
<PAGE>

Building; (v) costs of services or other benefits of a type which are not
available to Tenant but which are available to other tenants or occupants, and
costs for which Landlord is reimbursed by other tenants of the Building other
than through payment of tenants' shares of increases in Operating Costs and
Taxes; (vi) leasing commissions, attorneys' fees and other expenses incurred in
connection with leasing space in the Building or enforcing such leases; (vii)
depreciation or amortization, other than as specifically enumerated in the
definition of Operating Costs above; (viii) costs, fines or penalties incurred
due to Landlord's violation of any Law; (ix) costs, fines or penalties incurred
due to Landlord's violation of any terms or conditions of this Lease or any
other lease relating to the Building or Property, or due to Landlord's
negligence or willful misconduct; (x) overhead profit increments paid to
Landlord's subsidiaries or affiliates for management or other services on or to
the Building or for supplies or other materials to the extent that the cost of
the services, supplies or materials exceeds the cost that would have been paid
had the services, supplies or materials been provided by unaffiliated parties on
a competitive basis; (xi) all interest, loan fees, and other carrying costs
related to any mortgage or deed of trust and all rental payable under any ground
or underlying lease, or any lease for any equipment ordinarily considered to be
of a capital nature, to the extent such capital cost would not be includible in
Operating Costs (except janitorial equipment that is not affixed to the
Building); (xii) any compensation paid to clerks, attendants, or other persons
in commercial concessions operated by Landlord; (xiii) advertising and
promotional expenditures; (xiv) costs of repairs and other work occasioned by
fire, windstorm, or other casualty of an insurable nature, to the extent that
insurance proceeds (exclusive of any deductible) are actually received, less the
costs incurred in obtaining such proceeds; and (xv) the cost of correcting any
building code or other violations of law that were violations prior to the
Commencement Date.

(4) "TAXES" means: all real property taxes and general, special
or district assessments or other governmental impositions, of whatever kind,
nature or origin, imposed on or by reason of the ownership or use of the
Property; governmental charges, fees or assessments for transit or traffic
mitigation (including area-wide traffic improvement assessments and
transportation system management fees), housing, police, fire or other
governmental service or purported benefits to the Property; personal property
taxes assessed on the personal property of Landlord used in the operation of the
Property; service payments in lieu of taxes and taxes and assessments of every
kind and nature whatsoever levied or assessed in addition to, in lieu of or in
substitution for existing or additional real or personal property taxes on the
Property or the personal property described above; any increases in the
foregoing caused by changes in assessed valuation, tax rate or other factors or
circumstances; and the reasonable cost of contesting by appropriate proceedings
the amount or validity of any taxes, assessments or charges described above, but
excluding any of the foregoing to the extent assessed based on the value of
above standard office tenant improvements other than Tenant's. To the extent
paid by Tenant or other tenants as "TENANT'S TAXES" (as defined in Section 8 -
TENANT'S TAXES), "Tenant's Taxes" shall be excluded from Taxes.

(5) "TENANT'S SHARE" means the Rentable Area of the Premises
divided by the total Rentable Area of the Building, as set forth in the Basic
Lease Information. If the Rentable Area of the Building is changed or the
Rentable Area of the Premises is changed by Tenant's leasing of additional space
hereunder or for any other reason, Tenant's Share shall be adjusted accordingly.

5.
<PAGE>

(b) ADDITIONAL RENT.

(1) Tenant shall pay Landlord as "ADDITIONAL RENT" for each
calendar year or portion thereof, commencing one (1) year after the Commencement
Date, and thereafter throughout the Term, Tenant's Share of the sum of (x) the
amount (if any) by which Operating Costs for such period exceed Base Operating
Costs, and (y) the amount (if any) by which Taxes for such period exceed Base
Taxes.

(2) Prior to the end of the Base Year and each calendar year
thereafter, Landlord shall notify Tenant of Landlord's estimate of Operating
Costs, Taxes and Tenant's Additional Rent for the following calendar year.
Commencing on the first day of January of each calendar year and continuing on
the first day of every month thereafter in such year, Tenant shall pay to
Landlord one-twelfth (1/12th) of the estimated Additional Rent. If Landlord
thereafter reasonably estimates that Operating Costs or Taxes for such year will
vary from Landlord's prior estimate, Landlord may, by notice to Tenant, revise
the estimate for such year (and Additional Rent shall thereafter be payable
based on the revised estimate).

(3) As soon as reasonably practicable after the end of the Base
Year and each calendar year thereafter, Landlord shall furnish Tenant a
statement with respect to such year, showing Operating Costs, Taxes and
Additional Rent for the year, and the total payments made by Tenant with respect
thereto. Unless Tenant raises any objections to Landlord's statement within
ninety (90) days after receipt of the same, such statement shall conclusively be
deemed correct and Tenant shall have no right thereafter to dispute such
statement or any item therein or the computation of Additional Rent based
thereon. If Tenant does object to such statement, then Landlord shall provide
Tenant with reasonable verification of the figures shown on the statement and
the parties shall negotiate in good faith to resolve any disputes. If the
parties are unable to resolve such disputes, Landlord and Tenant shall agree
upon an independent certified public accountant, who shall audit the statement,
and Landlord's calculation of Operating Costs, Taxes and Tenant's share of any
increases in the same. Such accountant's determination shall be binding on
Landlord and Tenant. Tenant shall pay the cost of any such audit, unless the
audit shows that the Landlord's statement overstated the Tenant's share of
increases in Operating Costs and Taxes for the year by more than 7% of the
actual amount of the same, in which case Landlord shall pay the cost of the
audit. Any objection of Tenant to Landlord's statement and resolution of any
dispute shall not postpone the time for payment of any amounts due Tenant or
Landlord based on Landlord's statement, nor shall any failure of Landlord to
deliver Landlord's statement in a timely manner relieve Tenant of Tenant's
obligation to pay any amounts due Landlord based on Landlord's statement.

(4) If Tenant's Additional Rent as finally determined for any
calendar year exceeds the total payments made by Tenant on account thereof,
Tenant shall pay Landlord the deficiency within thirty (30) days of Tenant's
receipt of Landlord's statement. If the total payments made by Tenant on
account thereof exceed Tenant's Additional Rent as finally determined for such
year, Tenant's excess payment shall be credited toward the rent next due from
Tenant under this Lease. For any partial calendar year at the beginning or end
of the Term, Additional Rent shall be prorated on the basis of a 365-day year by
computing Tenant's Share of the increases in Operating Costs and Taxes for the
entire year and then prorating such amount for the number of days during such
year included in the Term. Notwithstanding the termination of

6.
<PAGE>

this Lease, Landlord shall pay to Tenant or Tenant shall pay to Landlord, as the
case may be, within ten (10) days after Tenant's receipt of Landlord's final
statement for the calendar year in which this Lease terminates, the difference
between Tenant's Additional Rent for that year, as finally determined by
Landlord, and the total amount previously paid by Tenant on account thereof.

If for any reason Base Taxes or Taxes for any year during the Term are
reduced, refunded or otherwise changed, Tenant's Additional Rent shall be
adjusted accordingly. If Taxes are temporarily reduced as a result of space in
the Building being leased to a tenant that is entitled to an exemption from
property taxes or other taxes, then for purposes of determining Additional Rent
for each year in which Taxes are reduced by any such exemption, Taxes for such
year shall be calculated on the basis of the amount the Taxes for the year would
have been in the absence of the exemption. The obligations of Landlord to
refund any overpayment of Additional Rent and of Tenant to pay any Additional
Rent not previously paid shall survive the expiration of the Term.
Notwithstanding anything to the contrary in this Lease, if there is at any time
a decrease in Taxes below the amount of the Taxes for the Base Year, then for
purposes of calculating Additional Rent for the year in which such decrease
occurs and all subsequent periods, Base Taxes shall be reduced to equal the
Taxes for the year in which the decrease occurs.

3.3 PAYMENT OF RENT. All amounts payable or reimbursable by Tenant under
this Lease, including late charges and interest (collectively, "RENT"), shall
constitute rent and shall be payable and recoverable as rent in the manner
provided in this Lease. All sums payable to Landlord on demand under the terms
of this Lease shall be payable within ten (10) days after notice from Landlord
of the amounts due. All rent shall be paid without offset, recoupment or
deduction in lawful money of the United States of America to Landlord at
Landlord's Address for Payment of Rent as set forth in the Basic Lease
Information, or to such other person or at such other place as Landlord may from
time to time designate.

4. SECURITY DEPOSIT. On execution of this Lease, Tenant shall deposit with
Landlord the amount specified in the Basic Lease Information as the Security
Deposit, and Tenant shall deliver to Landlord the "LETTER OF CREDIT" pursuant to
the provisions contained in Section 3 of Exhibit D below (collectively, the
"SECURITY DEPOSIT"), as security for the performance of Tenant's obligations
under this Lease. Landlord may (but shall have no obligation to) use the
security deposit, including any proceeds of the Letter of Credit, or any portion
thereof, to cure any Event of Default under this Lease or to compensate Landlord
for any damage Landlord incurs as a result of Tenant's failure to perform any of
Tenant's obligations hereunder. In such event Tenant shall pay to Landlord on
demand an amount sufficient to replenish the Security Deposit. If Tenant is not
in default at the expiration or termination of this Lease, Landlord shall return
to Tenant the Security Deposit or the balance thereof then held by Landlord and
not applied as provided above within fourteen (14) days after the Lease shall
have expired or terminated and Tenant shall have vacated the Premises in the
condition required hereunder. Landlord may commingle the Security Deposit with
Landlord's general and other funds. Landlord shall not be required to pay
interest on the Security Deposit to Tenant.

7.
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5. USE AND COMPLIANCE WITH LAWS.

5.1 USE. The Premises shall be used and occupied for general business
office purposes and for no other use or purpose. Tenant shall comply with all
present and future Laws relating to Tenant's use or occupancy of the Premises
(and make any repairs, alterations or improvements as required to comply with
all such Laws), and shall observe the "BUILDING RULES" (as defined in Section 27
- - RULES AND REGULATIONS). Notwithstanding the foregoing or anything else to the
contrary contained in this Lease, except as set forth in Section 3.2 above,
Tenant shall not be responsible for compliance with any laws, codes, ordinances
or other governmental directives where such compliance is not related
specifically to Tenant's use and occupancy of the Premises. For example, if any
governmental authority should require the Building or the Premises to be
structurally strengthened against earthquake, or should require the removal of
"HAZARDOUS MATERIALS" from the Premises that were not arising from or in
connection with the "Handling by Tenant" of "Hazardous Materials" at or about
the Property or Tenant's failure to comply in full with all "ENVIRONMENTAL
REQUIREMENTS" with respect to the Premises (as the foregoing terms are defined
in Section 5.2 below), and such measures are imposed as a general requirement
applicable to all tenants rather than as a condition to Tenant's specific use or
occupancy of the Premises, such work shall be performed by and at the sole cost
of Landlord, subject to the provisions of Section 3.2 of this Lease. Tenant
shall not do, bring, keep or sell anything in or about the Premises that is
prohibited by, or that will cause a cancellation of or an increase in the
existing premium for, any insurance policy covering the Property or any part
thereof. Tenant shall not permit the Premises to be occupied or used in any
manner that will constitute waste or a nuisance, or disturb the quiet enjoyment
of or otherwise annoy other tenants in the Building. Without limiting the
foregoing, the Premises shall not be used for classroom training activities
(except that Tenant may conduct classroom training sessions for up to 36
attendees at a time, not to exceed three (3) Business Days every other week),
practice of medicine or any of the healing arts, providing social services, for
any governmental use (including embassy or consulate use), or for personnel
agency, walk-in or walk-up customer service office (I.E., Tenant may provide
customer service by telephone), studios for radio, television or other media
(except that Tenant may use portions of the Premises for a sound studio for its
own use in adding sound effects to compact discs, CD-ROM's or other products),
travel agency or reservation center operations or uses. Tenant shall not,
without the prior consent of Landlord, (i) bring into the Building or the
Premises anything that may cause substantial noise, odor or vibration, overload
the floors in the Premises or the Building or any of the heating, ventilating
and air-conditioning ("HVAC"), mechanical, elevator, plumbing, electrical, fire
protection, life safety, security or other systems in the Building ("BUILDING
SYSTEMS"), or jeopardize the structural integrity of the Building or any part
thereof; (ii) connect to the utility systems of the Building any apparatus,
machinery. or other equipment other than typical office equipment; or (iii)
connect to any electrical circuit in the Premises any equipment or other load
with aggregate electrical power requirements in excess of 80% of the rated
capacity of the circuit.

5.2 HAZARDOUS MATERIALS.

(a) DEFINITIONS.

8.
<PAGE>

(1) "HAZARDOUS MATERIALS" shall mean any substance: (A) that now
or in the future is regulated or governed by, requires investigation or
remediation under, or is defined as a hazardous waste, hazardous substance,
pollutant or contaminant under any governmental statute, code, ordinance,
regulation, rule or order, and any amendment thereto, including the
Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C.
Section 9601 et seq., and the Resource Conservation and Recovery Act, 42 U.S.C.
Section 6901 et seq., or (B) that is toxic, explosive, corrosive, flammable,
radioactive, carcinogenic, dangerous or otherwise hazardous, including gasoline,
diesel fuel, petroleum hydrocarbons, polychlorinated biphenyls (PCBs), asbestos,
radon and urea formaldehyde foam insulation.

(2) "ENVIRONMENTAL REQUIREMENTS" shall mean all present and
future Laws, orders, permits, licenses, approvals, authorizations and other
requirements of any kind applicable to Hazardous Materials.

(3) "HANDLED BY TENANT" and "HANDLING BY TENANT" shall mean and
refer to any installation, handling, generation, storage, use, disposal,
discharge, release, abatement, removal, transportation, or any other activity of
any type by Tenant or its agents, employees, contractors, licensees, assignees,
sublessees, transferees or representatives (collectively, "REPRESENTATIVES") or
its guests, customers, invitees, or visitors (collectively, "VISITORS"), at or
about the Premises in connection with or involving Hazardous Materials.

(4) "ENVIRONMENTAL LOSSES" shall mean all costs and expenses of
any kind, damages, including foreseeable and unforeseeable consequential
damages, fines and penalties incurred in connection with any violation of and
compliance with Environmental Requirements and all losses of any kind
attributable to the diminution of value, loss of use or adverse effects on
marketability or use of any portion of the Premises or Property.

(b) TENANT'S ACKNOWLEDGEMENT AND COVENANTS. Tenant acknowledges that
it has received and had an opportunity to review a copy of that certain
Environmental Site Assessment prepared with respect to the Building by AllWest
Environmental, Inc., dated June 13, 1994. No Hazardous Materials shall be
Handled by Tenant at or about the Premises or Property without Landlord's prior
written consent, which consent may be granted, denied, or conditioned upon
compliance with Landlord's requirements, all in Landlord's absolute discretion.
Notwithstanding the foregoing, normal quantities and use of those Hazardous
Materials customarily used in the conduct of general office activities, such as
copier fluids and cleaning supplies ("PERMITTED HAZARDOUS MATERIALS"), may be
used and stored at the Premises without Landlord's prior written consent,
provided that Tenant's activities at or about the Premises and Property and the
Handling by Tenant of all Hazardous Materials shall comply at all times with all
Environmental Requirements. At the expiration or termination of the Lease,
Tenant shall promptly remove from the Premises and Property all Hazardous
Materials Handled by Tenant at the Premises or the Property. Tenant shall keep
Landlord fully and promptly informed of all Handling by Tenant of Hazardous
Materials other than Permitted Hazardous Materials. Tenant shall be responsible
and liable for the compliance with all of the provisions of this Section by all
of Tenant's Representatives and Visitors, and all of Tenant's obligations under
this Section (including its indemnification obligations under paragraph (e)
below) shall survive the expiration or termination of this Lease.

9.
<PAGE>

(c) COMPLIANCE. Tenant shall at Tenant's expense promptly take all
actions required by any governmental agency or entity in connection with or as a
result of the Handling by Tenant of Hazardous Materials at or about the Premises
or Property, including inspection and testing, performing all cleanup, removal
and remediation work required with respect to those Hazardous Materials,
complying with all closure requirements and post-closure monitoring, and filing
all required reports or plans. All of the foregoing work and all Handling by
Tenant of all Hazardous Materials shall be performed in a good, safe and
workmanlike manner by consultants qualified and licensed to undertake such work
and in a manner that will not interfere with any other tenant's quiet enjoyment
of the Property or Landlord's use, operation, leasing and sale of the Property.
Tenant shall deliver to Landlord prior to delivery to any governmental agency,
or promptly after receipt from any such agency, copies of all permits,
manifests, closure or remedial action plans, notices, and all other documents
relating to the Handling by Tenant of Hazardous Materials at or about the
Premises or Property. If any lien attaches to the Premises or the Property in
connection with or as a result of the Handling by Tenant of Hazardous Materials,
and Tenant does not cause the same to be released, by payment, bonding or
otherwise, within ten (10) days after the attachment thereof, Landlord shall
have the right but not the obligation to cause the same to be released and any
sums expended by Landlord (plus Landlord's administrative costs) in connection
therewith shall be payable by Tenant on demand.

(d) LANDLORD'S RIGHTS. Landlord shall have the right, but not the
obligation, to enter the Premises at any reasonable time (i) to confirm Tenant's
compliance with the provisions of this Section 5.2, and (ii) to perform Tenant's
obligations under this Section if Tenant has failed to do so after reasonable
notice to Tenant. Landlord shall also have the right to engage qualified
Hazardous Materials consultants to inspect the Premises and review the Handling
by Tenant of Hazardous Materials, including review of all permits, reports,
plans, and other documents regarding same. Tenant shall pay to Landlord on
demand the costs of Landlord's consultants' fees and all costs incurred by
Landlord in performing Tenant's obligations under this Section. Landlord shall
use reasonable efforts to minimize any interference with Tenant's business
caused by Landlord's entry into the Premises, but Landlord shall not be
responsible for any interference caused thereby, except as set forth in Section
10 below.

(e) TENANT'S INDEMNIFICATION. Tenant agrees to indemnify, defend,
protect and hold harmless Landlord and its partners or members and its or their
partners, members, directors, officers, shareholders, employees and agents from
all Environmental Losses and all other claims, actions, losses, damages,
liabilities, costs and expenses of every kind, including reasonable attorneys',
experts' and consultants' fees and costs, incurred at any time and arising from
or in connection with the Handling by Tenant of Hazardous Materials at or about
the Property or Tenant's failure to comply in full with all Environmental
Requirements with respect to the Premises.

6. TENANT IMPROVEMENTS & ALTERATIONS.

6.1 Landlord and Tenant shall perform their respective obligations with
respect to design and construction of any improvements to be constructed and
installed in the Premises (the "TENANT IMPROVEMENTS"), as provided in the
Construction Rider (PROVIDED, HOWEVER, that Tenant shall not be required to
obtain Landlord's prior approval for minor, non-structural

10.
<PAGE>

Alterations that do not affect any of the Building Systems, are not visible from
the exterior of the Premises, and cost less than Twenty Thousand Dollars
($20,000), so long as Tenant gives Landlord notice of the proposed Alterations
at least ten (10) days prior to commencement of the Alterations and complies
with all of the following provisions, except that Tenant shall not be required
to obtain Landlord's approval of any plans or specifications therefor). Except
for any Tenant Improvements to be constructed by Tenant as provided in the
Construction Rider, Tenant shall not make any alterations, improvements or
changes to the Premises, including installation of any security system or
telephone or data communication wiring, ("ALTERATIONS"), without Landlord's
prior written consent. Any such Alterations shall be completed by Tenant at
Tenant's sole cost and expense: (i) with due diligence, in a good and
workmanlike manner, using new materials; (ii) in compliance with plans and
specifications approved by Landlord; (iii) in compliance with the construction
rules and regulations promulgated by Landlord from time to time; (iv) in
accordance with all applicable Laws (including all work, whether structural or
non-structural, inside or outside the Premises, required to comply fully with
all applicable Laws and necessitated by Tenant's work); and (v) subject to all
conditions which Landlord may in Landlord's reasonable discretion impose. Such
conditions may include requirements for Tenant to: (i) provide payment or
performance bonds or additional insurance (from Tenant or Tenant's contractors,
subcontractors or design professionals); (ii) use the general contractor
designated by Landlord, so long as the fees to be charged by such general
contractor shall not exceed those that would be charged in an arms'-length
transaction; and (iii) remove all or part of the Alterations prior to or upon
expiration or termination of the Term, as designated by Landlord. If Tenant so
requests, subcontracts shall be competitively bid by subcontractors approved by
Landlord. Notwithstanding anything to the contrary herein, (a) Tenant shall not
be required to remove (1) any of the initial tenant improvements constructed by
or on behalf of Tenant, or (2) any alterations or additions for which Tenant has
obtained Landlord's consent unless at the time Tenant requested such consent
Tenant also requested that Landlord indicate that such removal will be required
and Landlord did not so indicate; and (b) Tenant shall be entitled to remove the
following described items: None [Tenant to provide list for Landlord approval].
If any work outside the Premises, or any work on or adjustment to any of the
Building Systems, is required in connection with or as a result of Tenant's
work, such work shall be performed at Tenant's expense by contractors designated
by Landlord. Landlord's right to review and approve (or withhold approval of)
Tenant's plans, drawings, specifications, contractor(s) and other aspects of
construction work proposed by Tenant is intended solely to protect Landlord, the
Property and Landlord's interests. No approval or consent by Landlord shall be
deemed or construed to be a representation or warranty by Landlord as to the
adequacy, sufficiency, fitness or suitability thereof or compliance thereof with
applicable Laws or other requirements. Except as otherwise provided in
Landlord's consent, or as described above, all Alterations shall upon
installation become pan of the realty and be the property of Landlord.

6.2 Before making any Alterations, Tenant shall submit to Landlord for
Landlord's prior approval reasonably detailed final plans and specifications
prepared by a licensed architect or engineer, a copy of the construction
contract, including the name of the contractor and all subcontractors proposed
by Tenant to make the Alterations and a copy of the contractor's license.
Tenant shall reimburse Landlord upon demand for any expenses reasonably incurred
by Landlord in connection with any Alterations made by Tenant, including
reasonable fees charged by Landlord's contractors or consultants to review plans
and specifications prepared by Tenant and to update the existing as-built plans
and specifications of the Building to reflect the

11.
<PAGE>

Alterations. Tenant shall obtain all applicable permits, authorizations and
governmental approvals and deliver copies of the same to Landlord before
commencement of any Alterations.

6.3 Tenant shall keep the Premises and the Property free and clear of all
liens arising out of any work performed, materials furnished or obligations
incurred by Tenant. If any such lien attaches to the Premises or the Property,
and Tenant does not cause the same to be released by payment, bonding or
otherwise within ten (10) days after the attachment thereof, Landlord shall have
the right but not the obligation to cause the same to be released, and any sums
expended by Landlord (plus Landlord's administrative costs) in connection
therewith shall be payable by Tenant on demand with interest thereon from the
date of expenditure by Landlord at the Interest Rate (as defined in Section 16.2
- - INTEREST). Tenant shall give Landlord at least ten (10) days' notice prior to
the commencement of any Alterations and cooperate with Landlord in posting and
maintaining notices of non-responsibility in connection therewith.

6.4 Subject to the provisions of Section 5 - USE AND COMPLIANCE WITH LAWS
and the foregoing provisions of this Section, Tenant may install, maintain and
remove furnishings, equipment, movable partitions, business equipment and other
trade fixtures ("TRADE FIXTURES") in the Premises, provided that the Trade
Fixtures do not become an integral part of the Premises or the Building. Tenant
shall promptly repair any damage to the Premises or the Building caused by any
installation or removal of such Trade Fixtures.

7. MAINTENANCE AND REPAIRS.

7.1 By taking possession of the Premises Tenant agrees that the Premises
are then in a good and tenantable condition. During the Term, Tenant at
Tenant's expense but under the direction of Landlord, shall repair and maintain
the Premises, including the interior walls, floor coverings, ceiling (ceiling
tiles and grid), Tenant Improvements, Alterations, fire extinguishers, outlets
and fixtures, and any appliances (including dishwashers, hot water heaters and
garbage disposers) in the Premises, in a first class condition, and keep the
Premises in a clean, safe and orderly condition.

7.2 Landlord shall maintain or cause to be maintained in reasonably good
order, condition and repair, the structural portions of the roof, foundations,
floors and exterior walls of the Building, the Building Systems, and the public
and common areas of the Property, such as elevators, stairs, corridors and
restrooms; PROVIDED, HOWEVER, that Tenant shall pay the cost of repairs for any
damage occasioned by Tenant's use of the Premises or the Property or any act or
omission of Tenant or Tenant's Representatives or Visitors, to the extent (if
any) not covered by the property insurance that Landlord is required to maintain
hereunder. Landlord shall be under no obligation to inspect the Premises.
Tenant shall promptly report in writing to Landlord any defective condition
known to Tenant which Landlord is required to repair. As a material part of the
consideration for this Lease, Tenant hereby waives any benefits of any
applicable existing or future Law, including the provisions of California Civil
Code Sections 1932(1 ), 1941 and 1942, that allows a tenant to make repairs at
its landlord's expense.

7.3 Landlord hereby reserves the right, at any time and from time to time,
without liability to Tenant, and without constituting an eviction, constructive
or otherwise, or entitling

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<PAGE>

Tenant to any abatement of rent or to terminate this Lease or otherwise
releasing Tenant from any of Tenant's obligations under this Lease:

(a) To make alterations, additions, repairs, improvements to or in or
to decrease the size of area of, all or any part of the Building, the fixtures
and equipment therein, and the Building Systems;

(b) To change the Building's name or street address;

Building;

(d) To reduce, increase, enclose or otherwise change at any time and
from time to time the size, number, location, lay-out and nature of the common
areas (including the Parking Facility) and other tenancies and premises in the
Property and to create additional rentable areas through use or enclosure of
common areas; and

(e) If any governmental authority promulgates or revises any Law or
imposes mandatory or voluntary controls or guidelines on Landlord or the
Property relating to the use or conservation of energy or utilities or the
reduction of automobile or other emissions or reduction or management of traffic
or parking on the Property (collectively "CONTROLS"), to comply with such
Controls, whether mandatory or voluntary, or make any alterations to the
Property related thereto.

In exercising its rights under this Section 7.3, Landlord will use reasonable
efforts to minimize any interruption to or disruption of Tenant's use of the
Premises.

8. TENANT'S TAXES. "TENANT'S TAXES" shall mean (a) all taxes, assessments,
license fees and other governmental charges or impositions levied or assessed
against or with respect to Tenant's personal property or Trade Fixtures in the
Premises, whether any such imposition is levied directly against Tenant or
levied against Landlord or the Property, (b) all rental, excise, sales or
transaction privilege taxes arising out of this Lease (excluding, however, state
and federal personal or corporate income taxes measured by the income of
Landlord from all sources) imposed by any taxing authority upon Landlord or upon
Landlord's receipt of any rent payable by Tenant pursuant to the terms of this
Lease ("RENTAL TAX"), and (c) any increase in Taxes attributable to inclusion of
a value placed on Tenant's personal property, Trade Fixtures or Alterations.
Tenant shall pay any Rental Tax to Landlord in addition to and at the same time
as Base Rent is payable under this Lease, and shall pay all other Tenant's Taxes
before delinquency (and, at Landlord's request, shall furnish Landlord
satisfactory evidence thereof). If Landlord pays Tenant's Taxes or any portion
thereof, Tenant shall reimburse Landlord upon demand for the amount of such
payment, together with interest at the Interest Rate from the date of Landlord's
payment to the date of Tenant's reimbursement.

9. UTILITIES AND SERVICES.

9.1 DESCRIPTION OF SERVICES. Landlord shall furnish to the Premises:
reasonable amounts of heat, ventilation-and air-conditioning during the Business
Hours specified in the

13.
<PAGE>

Basic Lease Information ("BUSINESS HOURS") on weekdays except public holidays
("BUSINESS DAYS"); reasonable amounts of electricity and water; and janitorial
services five days a week (except public holidays). Landlord shall also provide
the Building with normal fluorescent tube replacement, window washing, elevator
service (24 hours a day, subject to Landlord's security requirements), and
common area toilet room supplies. Any additional utilities or services that
Landlord may agree to provide (including lamp or tube replacement for other than
Building Standard lighting fixtures) shall be at Tenant's sole expense.

9.2 PAYMENT FOR ADDITIONAL UTILITIES AND SERVICES.

(a) Upon request by Tenant in accordance with the procedures
reasonably established by Landlord from time to time for furnishing HVAC service
at times other than Business Hours on Business Days, Landlord shall furnish such
service to Tenant and Tenant shall pay for such services on an hourly basis at
the then prevailing rate established for the Building by Landlord, which shall
not exceed Landlord's actual costs therefor (including without limitation
electrical costs, depreciation and overtime compensation). Landlord's current
charge for after-hours HVAC is $30 per hour, which includes all of the foregoing
costs.

(b) If the temperature otherwise maintained in any portion of the
Premises by the HVAC systems of the Building is affected as a result of (i) any
lights, machines or equipment used by Tenant in the Premises, or (ii) the
occupancy of the Premises by more than one person per 150 square feet of
rentable area, then Landlord shall have the right to install any machinery or
equipment reasonably necessary to restore the temperature, including
modifications to the standard air-conditioning equipment. The cost of any such
equipment and modifications, including the cost of installation and any
additional cost of operation and maintenance of the same, shall be paid by
Tenant to Landlord upon demand.

(c) If Tenant's usage of electricity, water or any other utility
service exceeds the use of such utility Landlord reasonably determines to be
typical, normal and customary. for the Building, Landlord may determine the
amount of such excess use by any reasonable means (including the installation at
Landlord's request but at Tenant's expense of a separate meter or other
measuring device) and charge Tenant for the cost of such excess usage. In
addition, Landlord may impose a reasonable charge for the use of any additional
or unusual janitorial services required by Tenant because of any unusual Tenant
Improvements or Alterations, the carelessness of Tenant or the nature of
Tenant's business (including hours of operation).

9.3 INTERRUPTION OF SERVICES. In the event of an interruption in, or
failure or inability to provide any of the services or utilities described in
Section 9.1 - "Description of Services" (a "SERVICE FAILURE"), such Service
Failure shall not, regardless of its duration, constitute an eviction of Tenant,
constructive or otherwise, or impose upon Landlord any liability whatsoever,
including, but not limited to, liability for consequential damages or loss of
business by Tenant or, except as provided herein, entitle Tenant to an abatement
of rent or to terminate this Lease.

(a) If any Service Failure not caused by Tenant or its
Representatives and caused by an occurrence on the Property prevents Tenant from
reasonably using a material portion of the Premises and Tenant in fact ceases to
use such portion of the Premises, Tenant shall be entitled to an abatement of
Base Rent and Additional Rent with respect to the portion of

14.
<PAGE>

the Premises that Tenant is prevented from using by reason of such Service
Failure in the following circumstances: (i) if Landlord fails to commence
reasonable efforts to remedy the Service Failure within three (3) Business Days
following the occurrence of the Service Failure, and such failure has persisted
and continuously prevented Tenant from using a material portion of the Premises
during that period, the abatement of rent shall commence on the fourth Business
Day following the Service Failure and continue until Tenant is no longer so
prevented from. using such portion of the Premises; and (ii) if the Service
Failure in all events is not remedied within twenty (20) days following the
occurrence of the Service Failure and Tenant in fact does not use such portion
of the Premises for an uninterrupted period of twenty (20) days or more by
reason of such Service Failure, the abatement of rent shall commence no later
than the twenty-first day following the occurrence of the Service Failure and
continue until Tenant is no longer so prevented from using such portion of the
Premises.

(b) If a Service Failure is caused by Tenant or its Representatives,
Landlord shall nonetheless remedy the Service Failure, at the expense of Tenant,
pursuant to Landlord's maintenance and repair obligations under Section 7 -
"Maintenance and Repair" or Section 12.1 -"Landlord's Duty to Repair," as the
case may be, but Tenant shall not be entitled to an abatement of rent or to
terminate this Lease as a result of any such Service Failure.

(c) Notwithstanding Tenant's entitlement to rent abatement under the
preceding provisions, Tenant shall continue to pay Tenant's then current rent
until such time as Landlord and Tenant agree on the amount of the rent
abatement. If Landlord and Tenant are unable to agree on the amount of such
abatement within ten (10) Business Days of the date they commence negotiations
regarding the abatement, then either party may submit the matter to binding
arbitration pursuant to Sections 1280 et seq. of the California Code of Civil
Procedure.

(d) In addition to the foregoing provisions, if there is a Service
Failure not caused by Tenant or its Representatives and caused by an occurrence
on the Property and such Service Failure prevents Tenant from conducting its
business in the Premises in the manner in which Tenant intends to conduct such
business, and (i) Landlord fails to commence reasonable efforts to remedy the
Service Failure within ninety (90) days following the occurrence of the Service
Failure, or (ii) the Service Failure in all events is not remedied within one
(1) year following its occurrence and Tenant in fact does not conduct any
business in the Premises for an uninterrupted period of one (1) year or more,
Tenant shall have the right to terminate this Lease by written notice delivered
to Landlord within ten (10) Business Days following the event described in
clauses (i) or (ii) above giving rise to the right to terminate.

(e) Where the cause of a Service Failure is within the control of a
public utility or other public or quasi-public entity outside Landlord's
control, notification to such utility or entity of the Service Failure and
request to remedy the failure shall constitute "reasonable efforts" by Landlord
to remedy the Service Failure.

(f) Tenant hereby waives the provisions of California Civil Code
Section 1932(1) or any other applicable existing or future law, ordinance or
governmental regulation permitting the termination of this Lease due to such
interruption, failure or inability.

10. EXCULPATION AND INDEMNIFICATION.

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10.1 LANDLORD'S INDEMNIFICATION OF TENANT. Landlord shall indemnify,
protect, defend and hold Tenant harmless from and against any claims, actions,
liabilities, damages, costs or expenses, including reasonable attorneys' fees
and costs incurred in defending against the same ("CLAIMS") asserted by any
third party against Tenant for loss, injury or damage, to the extent such loss,
injury or damage is caused by the willful misconduct or negligent acts or
omissions of Landlord or its authorized representatives.

10.2 TENANT'S INDEMNIFICATION OF LANDLORD. Tenant shall indemnify,
protect, defend and hold Landlord and Landlord's authorized representatives
harmless from and against Claims arising from (a) the acts or omissions of
Tenant or Tenant's Representatives or Visitors in or about the Property, or (b)
any construction or other work undertaken by Tenant on the Premises (including
any design defects), or (c) any breach or default under this Lease by Tenant, or
(d) any loss, injury or damage, howsoever and by whomsoever caused, to any
person or property, occurring in or about the Premises during the Term,
excepting only Claims described in this clause (d) to the extent they are caused
by the willful misconduct or negligent acts or omissions of Landlord or its
authorized representatives.

10.3 DAMAGE TO TENANT AND TENANT'S PROPERTY. Landlord shall not be liable
to Tenant for any loss, injury or other damage to Tenant or to Tenant's property
in or about the Premises or the Property from any cause (including defects in
the Property, or in any equipment in the Property; fire, explosion or other
casualty; bursting, rupture, leakage or overflow of any plumbing or other pipes
or lines, sprinklers, tanks, drains, drinking fountains or washstands in, above,
or about the Premises or the Property; or acts of other tenants in the Property)
unless such loss, injury or other damage is caused by the gross negligence,
willful misconduct or breach of this Lease by Landlord or Landlord's authorized
representatives and is covered by any insurance carried or required to be
carried by Landlord hereunder. Tenant hereby waives all claims against Landlord
for any such loss, injury or damage and the cost and expense of defending
against claims relating thereto, including any loss, injury or damage caused by
Landlord's negligence (active or passive) or willful misconduct.
Notwithstanding any other provision of this Lease to the contrary, in no event
shall Landlord be liable to Tenant for any punitive or consequential damages or
damages for loss of business by Tenant.

10.4 SURVIVAL. The obligations of the parties under this Section 10 shall
survive the expiration or termination of this Lease.

11. INSURANCE.

11.1 TENANT' S INSURANCE.

(a) LIABILITY INSURANCE. Tenant shall maintain in full force
throughout the Term, commercial general liability insurance providing coverage
on an occurrence form basis with limits of not less than Two Million Dollars
($2,000,000.00) each occurrence for bodily injury and property damage combined,
Two Million Dollars ($2,000,000.00) annual general aggregate, and Two Million
Dollars ($2,000,000.00) products and completed operations annual aggregate.
Tenant's liability insurance policy or policies shall: (i) include premises and
operations liability coverage, products and completed operations liability
coverage, broad form property damage coverage including completed operations,
blanket contractual liability coverage

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including, to the maximum extent possible, coverage for the indemnification
obligations of Tenant under this Lease, and personal and advertising injury
coverage; (ii) provide that the insurance company has the duty to defend all
insureds under the policy; (iii) provide that defense costs are paid in addition
to and do not deplete any of the policy limits; (iv) cover liabilities arising
out of or incurred in connection with Tenant's use or occupancy of the Premises
or the Property; (v) extend coverage to cover liability for the actions of
Tenant's Representatives and Visitors; and (iv) designate separate limits for
the Property. Each policy of liability insurance required by this Section
shall: (i) contain a cross liability endorsement or separation of insureds
clause; (ii) provide that any waiver of subrogation rights or release prior to a
loss does not void coverage; (iii) provide that it is primary, to and not
contributing with, any policy of insurance carried by Landlord covering the same
loss; (iv) provide that any failure to comply with the reporting provisions
shall not affect coverage provided to Landlord, its partners, property managers
and Mortgagees; and (v) name Landlord, its partners, the Property Manager
identified in the Basic Lease Information (the "PROPERTY MANAGER"), and such
other parties in interest as Landlord may from time to time reasonably designate
to Tenant in writing, as additional insureds. Such additional insureds shall be
provided at least the same extent of coverage as is provided to Tenant under
such policies. All endorsements effecting such additional insured status shall
be at least as broad as additional insured endorsement form number CG 20 11 11
85 promulgated by the Insurance Services Office.

(b) PROPERTY INSURANCE. Tenant shall at all times maintain in effect
with respect to any Alterations and Tenant's Trade Fixtures and personal
property, commercial property insurance providing coverage, on an "all risk" or
"special form" basis, in an amount equal to at least 90% of the full replacement
cost of the covered property. Tenant may carry such insurance under a blanket
policy, provided that such policy provides coverage equivalent to a separate
policy. During the Term, the proceeds from any such policies of insurance shall
be used for the repair or replacement of the Alterations, Trade Fixtures and
personal property so insured. Landlord shall be provided coverage under such
insurance to the extent of its insurable interest and, if requested by Landlord,
both Landlord and Tenant shall sign all documents reasonably necessary or proper
in connection with the settlement of any claim or loss under such insurance.
Landlord will have no obligation to carry insurance on any Alterations or on
Tenant's Trade Fixtures or personal property.

(c) REQUIREMENTS FOR ALL POLICIES. Each policy of insurance required
under this Section 11.1 shall: (i) be in a form, and written by an insurer,
reasonably acceptable to Landlord, (ii) be maintained at Tenant's sole cost and
expense, and (iii) require at least thirty (30) days' written notice to Landlord
prior to any cancellation, nonrenewal or modification of insurance coverage.
Insurance companies issuing such policies shall have rating classifications of
"A" or better and financial size category ratings of "VII" or better according
to the latest edition of the A.M. Best Key Rating Guide. All insurance
companies issuing such policies shall be admitted careers licensed to do
business in the state where the Property is located. Any deductible amount
under such insurance shall not exceed $5,000. Tenant shall provide to Landlord,
upon request, evidence that the insurance required to be caused by Tenant
pursuant to this Section, including any endorsement effecting the additional
insured status, is in full force and effect and that premiums therefor have been
paid.

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(d) UPDATING COVERAGE. Tenant shall increase the amounts of
insurance as required by any Mortgagee, and, not more frequently than once every
three (3) years, as recommended by Landlord's insurance broker, if, in the
reasonable opinion of either of them, the amount of insurance then required
under this Lease is not adequate. Any limits set forth in this Lease on the
amount or type of coverage required by Tenant's insurance shall not limit the
liability of Tenant under this Lease.

(e) CERTIFICATES OF INSURANCE. Prior to occupancy of the Premises by
Tenant, and not less than thirty (30) days prior to expiration of any policy
thereafter, Tenant shall furnish to Landlord a certificate of insurance
reflecting that the insurance required by this Section is in force, accompanied
by an endorsement showing the required additional insureds satisfactory to
Landlord in substance and form. Notwithstanding the requirements of this
paragraph, Tenant shall at Landlord's request provide to Landlord a certified
copy of each insurance policy required to be in force at any time pursuant to
the requirements of this Lease or its Exhibits.

11.2 LANDLORD'S INSURANCE. During the Term, to the extent such coverages
are available at a commercially reasonable cost, Landlord shall maintain in
effect insurance on the Building with responsible insurers, on an "all risk" or
"special form" basis, insuring the Building and the Tenant Improvements in an
mount equal to at least 90% of the replacement cost thereof, excluding land,
foundations, footings and underground installations. Landlord may, but shall
not be obligated to, carry insurance against additional perils and/or in greater
amounts.

11.3 MUTUAL WAIVER OF RIGHT OF RECOVERY & WAIVER OF SUBROGATION. Landlord
and Tenant each hereby waive any right of recovery against each other and the
partners, managers, members, shareholders, officers, directors and authorized
representatives of each other for any loss or damage that is covered by any
policy of property insurance maintained by either party. (or required by this
Lease to be maintained) with respect to the Premises or the Property or any
operation therein, regardless of cause, including negligence (active or passive)
of the party benefiting from the waiver. If any such policy of insurance
relating to this Lease or to the Premises or the Property does not permit the
foregoing waiver or if the coverage under any such policy would be invalidated
as a result of such waiver, the party maintaining such policy shall obtain from
the insurer under such policy a waiver of all right of recovery by way of
subrogation against either party in connection with any claim, loss or damage
covered by such policy.

12. DAMAGE OR DESTRUCTION.

12.1 LANDLORD'S DUTY TO REPAIR.

(a) If all or a substantial part of the Premises are rendered
untenantable or inaccessible by damage to all or any part of the Property from
fire or other casualty then, unless either party is entitled to and elects to
terminate this Lease pursuant to Sections 12.2 - LANDLORD'S RIGHT TO TERMINATE
and 12.3 - TENANT'S RIGHT TO TERMINATE, Landlord shall, at its expense, use
reasonable efforts to repair and restore the Premises and/or the Property, as
the case may be, to substantially their former condition to the extent permitted
by then applicable Laws; PROVIDED, HOWEVER, that in no event shall Landlord have
any obligation for repair or restoration beyond the extent of insurance proceeds
received by Landlord for such repair or restoration, or for any of Tenant's
personal property, Trade Fixtures or Alterations.

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(b) If Landlord is required or elects to repair damage to the
Premises and/or the Property, this Lease shall continue in effect, but Tenant's
Base Rent and Additional Rent shall be abated with regard to any portion of the
Premises that Tenant is prevented from using by reason of such damage or its
repair from the date of the casualty until substantial completion of Landlord's
repair of the affected portion of the Premises as required under this Lease. In
no event shall Landlord be liable to Tenant by reason of any injury to or
interference with Tenant's business or property arising from fire or other
casualty or by reason of any repairs to any part of the Property necessitated by
such casualty. Notwithstanding Tenant's entitlement to rent abatement under the
preceding provisions, Tenant shall continue to pay Tenant's then current rent
until such time as Landlord and Tenant agree on the amount of the rent
abatement. Landlord and Tenant agree to negotiate in good faith with respect to
the amount of such abatement; and if Landlord and Tenant are unable to agree on
the amount of such abatement within ten (10) Business Days of the date they
commence negotiations regarding the abatement, then either party may submit the
matter to binding arbitration pursuant to Sections 1280 et seq. of the
California Code of Civil Procedure.

12.2 LANDLORD'S RIGHT TO TERMINATE. Landlord may elect to terminate this
Lease following damage by fire or other casualty under the following
circumstances:

(a) If, in the reasonable judgment of Landlord, the Premises and the
Property cannot be substantially repaired and restored under applicable Laws
within one (1) year from the date of the casualty;

(b) If, in the reasonable judgment of Landlord, adequate proceeds are
not, for any reason (other than Landlord's failure to maintain the insurance
required hereunder), made available to Landlord from Landlord's insurance
policies (and/or from Landlord's funds made available for such purpose, at
Landlord's sole option) to make the required repairs;

(c) If the Building is damaged or destroyed to the extent that, in
the reasonable judgment of Landlord, the cost to repair and restore the Building
would exceed twenty-five percent (25%) of the full replacement cost of the
Building, whether or not the Premises are at all damaged or destroyed; or

(d) If the fire or other casualty, occurs during the last year of the
Term.

If any of the circumstances described in subparagraphs (a), (b), (c) or (d) of
this Section 12.2 occur or arise, Landlord shall give Tenant notice within one
hundred and twenty (120) days after the date of the casualty, specifying whether
Landlord elects to terminate this Lease as provided above and, if not,
Landlord's estimate of the time required to complete Landlord's repair
obligations under this Lease.

12.3 TENANT'S RIGHT TO TERMINATE. Landlord shall give notice to Tenant of
Landlord's election to rebuild or not to rebuild the Premises within one hundred
twenty (120) days after the date of the casualty, and such notice shall specify
Landlord's architect's or engineer's estimate as to the time required to rebuild
or restore the Premises. If all or a substantial part of the Premises are
rendered untenantable or inaccessible by damage to all or any part of the
Property from fire or other casualty, and Landlord does not elect to terminate
as

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provided above, then Tenant may elect to terminate this Lease if Landlord's
estimate of the time required to complete Landlord's repair obligations under
this Lease is greater than one (1) year, in which event Tenant may elect to
terminate this Lease by giving Landlord notice of such election to terminate
within thirty (30) days after Landlord's notice to Tenant pursuant to this
Section 12. If Landlord fails to restore the Premises (including reasonable
means of access thereto) by the later of one (I) year after the casualty or
sixty (60) days after the estimated date for completion of Landlord's repair,
Tenant, at any time thereafter until such rebuilding is completed, may terminate
this Lease by delivering written notice to Landlord of such election, in which
event this Lease will terminate as of the date of the giving of such notice.

12.4 WAIVER. Landlord and Tenant each hereby waive the provisions of
California Civil Code Sections 1932(2), 1933(4) and any other applicable
existing or future Law permitting the termination of a lease agreement in the
event of damage or destruction under any circumstances other than as provided in
Sections 12.2 - LANDLORD'S RIGHT TO TERMINATE and 12.3 - TENANT'S RIGHT TO
TERMINATE.

13. CONDEMNATION.

13.1 DEFINITIONS.

(a) "AWARD" shall mean all compensation, sums, or anything of value
awarded, paid or received on a total or partial Condemnation.

(b) "CONDEMNATION" shall mean (i) a permanent taking (or a temporary
taking for a period extending beyond the end of the Term) pursuant to the
exercise of the power of condemnation or eminent domain by any public or
quasi-public authority, private corporation or individual having such power
("CONDEMNOR"), whether by legal proceedings or otherwise, or (ii) a voluntary
sale or transfer by Landlord to any such authority, either under threat of
condemnation or while legal proceedings for condemnation are pending.

(c) "DATE OF CONDEMNATION" shall mean the earlier of the date that
title to the property taken is vested in the Condemnor or the date the Condemnor
has the right to possession of the property being condemned.

13.2 EFFECT ON LEASE.

(a) If the Premises are totally taken by Condemnation, this Lease
shall terminate as of the Date of Condemnation. If a portion but not all of the
Premises is taken by Condemnation, this Lease shall remain in effect; PROVIDED,
HOWEVER, that if the portion of the Premises remaining after the Condemnation
will be unsuitable for Tenant's continued use, then upon notice to Landlord
within thirty (30) days after Landlord notifies Tenant of the Condemnation,
Tenant may terminate this Lease effective as of the Date of Condemnation.

(b) If twenty-five percent (25%) or more of the Project or of the
parcel(s) of land on which the Building is situated or of the Parking Facility
or of the floor area in the Building is taken by Condemnation, or if as a result
of any Condemnation the Building is no longer reasonably suitable for use as an
office building, whether or not any portion of the

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Premises is taken, Landlord may elect to terminate this Lease, effective as of
the Date of Condemnation, by notice to Tenant within thirty (30) days after the
Date of Condemnation.

(c) If all or a portion of the Premises is temporarily taken by a
Condemnor for a period not extending beyond the end of the Term, this Lease
shall remain in full force and effect.

13.3 RESTORATION. If this Lease is not terminated as provided in Section
13.2 - EFFECT ON LEASE, Landlord, at its expense, shall diligently proceed to
repair and restore the Premises to substantially its former condition (to the
extent permitted by then applicable Laws) and/or repair and restore the Building
to an architecturally complete office building; PROVIDED, HOWEVER, that
Landlord's obligations to so repair and restore shall be limited to the amount
of any Award received by Landlord and not required to be paid to any Mortgagee
(as defined in Section 20.2 below). In no event shall Landlord have any
obligation to repair or replace any improvements in the Premises beyond the
amount of any Award received by Landlord for such repair or to repair or replace
any of Tenant's personal property, Trade Fixtures, or Alterations.

13.4 ABATEMENT AND REDUCTION OF RENT. If any portion of the Premises is
taken in a Condemnation or is rendered permanently untenantable by repairs
necessitated by the Condemnation, and this Lease is not terminated, the Base
Rent and Additional Rent payable under this Lease shall be proportionally
reduced as of the Date of Condemnation based upon the percentage of rentable
square feet in the Premises so taken or rendered permanently untenantable. In
addition, if this Lease remains in effect following a Condemnation and Landlord
proceeds to repair and restore the Premises, the Base Rent and Additional Rent
payable under this Lease shall be abated during the period of such repair or
restoration to the extent such repairs prevent Tenant's use of the Premises.

13.5 AWARDS. Any Award made shall be paid to Landlord, and Tenant hereby
assigns to Landlord, and waives all interest in or claim to, any such Award,
including any claim for the value of the unexpired Term; PROVIDED, HOWEVER, that
Tenant shall be entitled to receive, or to prosecute a separate claim for, an
Award for a temporary taking of the Premises or a portion thereof by a Condemnor
where this Lease is not terminated (to the extent such Award relates to the
unexpired Term), or an Award or portion thereof separately designated for
relocation expenses or the interruption of or damage to Tenant's business or as
compensation for Tenant's personal property, Trade Fixtures or Alterations.

13.6 WAIVER. Landlord and Tenant each hereby waive the provisions of
California Code of Civil Procedure Section 1265.130 and any other applicable
existing or future Law allowing either party to petition for a termination of
this Lease upon a partial taking of the Premises and/or the Property.

14. ASSIGNMENT AND SUBLETTING.

14.1 LANDLORD'S CONSENT REQUIRED. Except in connection with a permitted
transfer to an "AFFILIATE" (as defined in Section 14.9 - TRANSFER TO AFFILIATE,
below) Tenant shall not assign this Lease or any interest therein, or sublet or
license or permit the use or occupancy of the Premises or any part thereof by or
for the benefit of anyone other than Tenant, or in any other

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manner transfer all or any part of Tenant's interest under this Lease (each and
all a "TRANSFER"), without the prior written consent of Landlord, which consent
(subject to the other provisions of this Section 14) shall not be unreasonably
withheld. If Tenant is a business entity, any direct or indirect transfer of
fifty percent (50%) or more of the ownership interest of the entity (whether in
a single transaction or in the aggregate through more than one transaction)
shall be deemed a Transfer. Notwithstanding any provision in this Lease to the
contrary, Tenant shall not mortgage, pledge, hypothecate or otherwise encumber
this Lease or all or any part of Tenant's interest under this Lease.

14.2 REASONABLE CONSENT.

(a) Prior to any proposed Transfer, Tenant shall submit in writing to
Landlord (i) the name and legal composition of the proposed assignee, subtenant,
user or other transferee (each a "PROPOSED TRANSFEREE"); (ii) the nature of the
business proposed to be carried on in the Premises; (iii) a copy of the proposed
assignment, sublease or other agreement governing the proposed Transfer; and
(except in the case of a Proposed Transferee that is an Affiliate) (iv) a
current balance sheet, income statements for the last two years and such other
reasonable financial and other information concerning the Proposed Transferee as
Landlord may request. Within fifteen (15) Business Days after Landlord receives
all such information it shall notify Tenant whether it approves or disapproves
such Transfer or if it elects to proceed under Section 14.7 -LANDLORD'S RIGHT TO
SPACE.

(b) Tenant acknowledges and agrees that, among other circumstances
for which Landlord could reasonably withhold consent to a proposed Transfer, it
shall be reasonable for Landlord to withhold consent where (i) the Proposed
Transferee does not intend itself to occupy the entire portion of the Premises
assigned or sublet, (ii) Landlord reasonably disapproves of the Proposed
Transferee's business operating ability or history, reputation or
creditworthiness or the character of the business to be conducted by the
Proposed Transferee at the Premises, (iii) the Proposed Transferee is a
governmental agency or unit, or, if Landlord has space available to accommodate
such Proposed Transferee, an existing tenant in the Project, (iv) the proposed
Transfer would violate any "exclusive" rights of any tenants in the Project, (v)
Landlord or Landlord's agent has shown space in the Building to the Proposed
Transferee or responded to any inquiries from the Proposed Transferee or the
Proposed Transferee's agent concerning availability of space in the Building, at
any time within the preceding nine months, if Landlord has space available to
accommodate such Proposed Transferee, or (vi) Landlord otherwise reasonably
determines that the proposed Transfer would have the effect of decreasing the
value of the Building or increasing the expenses associated with operating,
maintaining and repairing the Property. In no event may Tenant publicly
advertise all or any portion of the Premises for assignment or sublease at a
rental less than that then sought by Landlord for a direct lease (non-sublease)
of comparable space in the Project.

14.3 EXCESS CONSIDERATION. If Landlord consents to the Transfer, Tenant
shall pay to Landlord as Additional Rent, within ten (10) days after receipt by
Tenant, two-thirds (2/3) of all "Sublease Profits" (as defined below).
"Sublease Profits" shall mean any consideration paid by any transferee (the
"TRANSFEREE") for the Transfer, including, in the case of a sublease, the excess
of the rent and other consideration payable by the subtenant over the amount of
Base Rent and Additional Rent payable hereunder applicable to the subleased
space, less any and all direct,

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out-of-pocket expenses and cash concessions, including costs for necessary
Alterations, reasonable brokerage commissions and reasonable attorneys' fees and
costs, paid by Tenant to procure the assignee or subtenant, all of which costs
shall be amortized at an annual interest rate of 10% over the term of the
assignment or sublease.

14.4 NO RELEASE OF TENANT. No consent by Landlord to any Transfer shall
relieve Tenant of any obligation to be performed by Tenant under this Lease,
whether occurring before or after such consent, assignment, subletting or other
Transfer. Each Transferee shall be jointly and severally liable with Tenant
(and Tenant shall be jointly and severally liable with each Transferee) for the
payment of rent (or, in the case of a sublease, rent in the amount set forth in
the sublease) and for the performance of all other terms and provisions of this
Lease. The consent by Landlord to any Transfer shall not relieve Tenant or any
such Transferee from the obligation to obtain Landlord's express prior written
consent to any subsequent Transfer by Tenant or any Transferee. The acceptance
of rent by Landlord from any other person (whether or not such person is an
occupant of the Premises) shall not be deemed to be a waiver by Landlord of any
provision of this Lease or to be a consent to any Transfer.

14.5 EXPENSES AND ATTORNEYS' FEES. Tenant shall pay to Landlord on demand
all reasonable costs and expenses (including reasonable attorneys' fees, not to
exceed $1,000.00) incurred by Landlord in connection with reviewing or
consenting to any proposed Transfer (including any request for consent to, or
any waiver of Landlord's rights in connection with, any security interest in any
of Tenant's property at the Premises).

14.6 EFFECTIVENESS OF TRANSFER. Prior to the date on which any permitted
Transfer (whether or not requiring Landlord's consent) becomes effective, Tenant
shall deliver to Landlord a counterpart of the fully executed Transfer document
and Landlord's standard form of Consent to Assignment Or Consent to Sublease
executed by Tenant and the Transferee in which each of Tenant and the Transferee
confirms its obligations pursuant to this Lease. Failure or refusal of a
Transferee to execute any such instrument shall not release or discharge the
Transferee from liability as provided herein. The voluntary, involuntary or
other surrender of this Lease by Tenant, or a mutual cancellation by Landlord
and Tenant, shall not work a merger, and any such surrender or cancellation
shall, at the option of Landlord, either terminate all or any existing subleases
or operate as an assignment to Landlord of any or all of such subleases.

14.7 LANDLORD'S RIGHT TO SPACE.

(a) Notwithstanding any of the above provisions of this Section to
the contrary, except in connection with a Transfer to an Affiliate, if Tenant
notifies Landlord that it desires to enter into a Transfer, Landlord, in lieu of
consenting to such Transfer, may elect (x) in the case of an assignment or a
sublease of the entire Premises, to terminate this Lease, or (y) in the case of
a sublease of less than the entire Premises for the remainder of the Term, to
terminate this Lease as it relates to the space proposed to be subleased by
Tenant. In such event, this Lease will terminate (or the space proposed to be
subleased will be removed from the Premises subject to this Lease and the Base
Rent and Tenant's Share under this Lease shall be proportionately reduced) on
the date the Transfer was proposed to be effective, and Landlord may lease such
space to any party, including the prospective Transferee identified by Tenant.

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(b) Notwithstanding the foregoing provisions of Section 14.3 and
14.7(a) to the contrary, Tenant shall have the right to sublease up to 14,000
rentable square feet of the Premises for up to twenty-four (24) months, and
Landlord's right to recapture under Section 14.7(a) shall not apply to such a
sublease; however, Tenant shall pay to Landlord as Additional Rent, within ten
(10) days after receipt by Tenant, one hundred percent (100%) of all Sublease
Profits (as defined in Section 14.3). Any extension or renewal of such a
sublease shall be subject to Sections 14.3 and 14.7(a).

14.8 ASSIGNMENT OF SUBLEASE RENTS. Tenant hereby absolutely and
irrevocably assigns to Landlord any and all rights to receive rent and other
consideration from any sublease and agrees that Landlord, as assignee or as
attorney-in-fact for Tenant for purposes hereof, or a receiver for Tenant
appointed on Landlord's application may (but shall not be obligated to) collect
such rents and other consideration and apply the same toward Tenant's
obligations to Landlord under this Lease; PROVIDED, HOWEVER, that Landlord
grants to Tenant at all times prior to occurrence of any breach or default by
Tenant a revocable license to collect such rents (which license shall
automatically and without notice be and be deemed to have been revoked and
terminated immediately upon any Event of Default).

14.9 TRANSFER TO AFFILIATE. Notwithstanding the foregoing provisions of
this Section 14 to the contrary, Tenant may assign this Lease or sublet the
Premises or any portion thereof, without Landlord's consent, to any corporation
or other entity which controls, is controlled by, or is under common control
with Tenant, or to any corporation or other entity resulting from a merger or
consolidation with Tenant, or to any person or entity which acquires
substantially all the assets of Tenant as a going concern (collectively, an
"AFFILIATE"), provided that the Affiliate assumes in writing all of Tenant's
obligations under this Lease.

14.10 PUBLIC OFFERING OR FINANCING. Notwithstanding any other
provision contained herein to the contrary, (i) Tenant shall be permitted to
offer shares of Tenant's stock at a public offering on any public stock exchange
without Landlord's consent; and any such sale of shares of Tenant's stock at a
public offering on any public stock exchange shall not constitute a "Transfer"
for the purposes of this Section 14; and (ii) Tenant shall be permitted to sell
or transfer share of Tenant's stock in connection with any BONA FIDE financing
or capitalization for the benefit of Tenant; PROVIDED, HOWEVER, in each case
Tenant shall provide to Landlord the notice required under Section 14.2(a)(i)
above.

15. DEFAULT AND REMEDIES.

15.1 EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an "EVENT OF DEFAULT" by Tenant:

(a) Tenant fails to make any payment of rent when due, or any amount
required to replenish the security deposit as provided in Section 4 above, if
payment in full is not received by Landlord within three (3) days after written
notice that it is due.

(b) Tenant abandons the Premises and fails to pay rent when due and
to collect mail and packages and otherwise maintain the Premises in a neat and
orderly condition and as otherwise required under this Lease.

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(c) Tenant fails timely to deliver any subordination document,
estoppel certificate or financial statement requested by Landlord within the
applicable time period specified in Sections 20 - ENCUMBRANCES - and 21 -
ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS - below.

(d) Tenant violates the restrictions on Transfer set forth in Section
14 -ASSIGNMENT AND SUBLETTING.

(e) Tenant ceases doing business as a going concern; makes an
assignment for the benefit of creditors; is adjudicated an insolvent, files a
petition (or files an answer admitting the material allegations of a petition)
seeking relief under any state or federal bankruptcy or other statute, law or
regulation affecting creditors' rights; all or substantially all of Tenant's
assets are subject to judicial seizure or attachment and are not released within
30 days, or Tenant consents to or acquiesces in the appointment of a trustee,
receiver or liquidator for Tenant or for all or any substantial part of Tenant's
assets.

(f) Tenant fails, within ninety (90) days after the commencement of
any proceedings against Tenant seeking relief under any state or federal
bankruptcy or other statute, law or regulation affecting creditors' rights, to
have such proceedings dismissed, or Tenant fails, within ninety (90) days after
an appointment, without Tenant's consent or acquiescence, of any trustee,
receiver or liquidator for Tenant or for all or any substantial part of Tenant's
assets, to have such appointment vacated.

(g) Tenant fails to perform or comply with any provision of this
Lease other than those described in (a) through (f) above, and (i) Tenant does
not fully cure such failure within fifteen (15) days after notice to Tenant, or
(ii) if such failure does not jeopardize or impair the quiet enjoyment of any
other occupant of the Building or create any threat of release of any Hazardous
Materials, Tenant does not fully cure such failure within thirty (30) days after
notice to Tenant, or (iii) if such failure does not jeopardize or impair the
quiet enjoyment of any other occupant of the Building or create any threat of
release of any Hazardous Materials, and such failure cannot be cured within such
thirty (30)-day period, Tenant fails within such thirty (30)-day period to
commence, and thereafter diligently proceed with, all actions necessary to cure
such failure as soon as reasonably possible but in all events within ninety (90)
days of such notice; PROVIDED, HOWEVER, that if Landlord in Landlord's
reasonable judgment determines that such failure cannot or will not be cured by
Tenant within such ninety (90) days, then such failure shall constitute an Event
of Default immediately upon such notice to Tenant.

15.2 REMEDIES. Upon the occurrence of an Event of Default, Landlord shall
have the following remedies, which shall not be exclusive but shall be
cumulative and shall be in addition to any other remedies now or hereafter
allowed by law:

(a) Landlord may terminate Tenant's right to possession of the
Premises at any time by written notice to Tenant. Tenant expressly acknowledges
that in the absence of such written notice from Landlord, no other act of
Landlord, including re-entry into the Premises, efforts to relet the Premises,
reletting of the Premises for Tenant's account, storage of Tenant's personal
property and Trade Fixtures, acceptance of keys to the Premises from Tenant or
exercise of any other rights and remedies under this Section, shall constitute
an acceptance of

25.
<PAGE>

Tenant's surrender of the Premises or constitute a termination of this Lease or
of Tenant's right to possession of the Premises. Upon such termination in
writing of Tenant's right to possession of the Premises, as herein provided,
this Lease shall terminate and Landlord shall be entitled to recover damages
from Tenant as provided in California Civil Code Section 1951.2 and any other
applicable existing or future Law providing for recovery of damages for such
breach, including the worth at the time of award of the amount by which the rent
which would be payable by Tenant hereunder for the remainder of the Term after
the date of the award of damages, including Additional Rent as reasonably
estimated by Landlord, exceeds the amount of such rental loss as Tenant proves
could have been reasonably avoided, discounted at the discount rate published by
the Federal Reserve Bank of San Francisco for member banks at the time of the
award plus one percent (1%).

(b) Landlord shall have the remedy described in California Civil Code
Section 1951.4 (Landlord may continue this Lease in effect after Tenant's breach
and abandonment and recover rent as it becomes due, if Tenant has the right to
sublet or assign, subject only to reasonable limitations).

(c) Landlord may cure the Event of Default at Tenant's expense. If
Landlord pays any sum or incurs any expense in curing the Event of Default,
Tenant shall reimburse Landlord upon demand for the amount of such payment or
expense with interest at the Interest Rate from the date the sum is paid or the
expense is incurred until Landlord is reimbursed by Tenant.

(d) Landlord may remove all Tenant's property from the Premises, and
such property may be stored by Landlord in a public warehouse or elsewhere at
the sole cost and for the account of Tenant. If Landlord does not elect to
store any or all of Tenant's property left in the Premises, Landlord may
consider such property to be abandoned by Tenant, and Landlord may thereupon
dispose of such property in any manner deemed appropriate by Landlord. Any
proceeds realized by Landlord on the disposal of any such property shall be
applied first to offset all expenses of storage and sale, then credited against
Tenant's outstanding obligations to Landlord under this Lease, and any balance
remaining after satisfaction of all obligations of Tenant under this Lease shall
be delivered to Tenant.

16. LATE CHARGE AND INTEREST.

16.1 LATE CHARGE. If any payment of rent is not received by Landlord when
due, Tenant shall pay to Landlord on demand as a late charge an additional
amount equal to four percent (4%) of the overdue payment; PROVIDED, HOWEVER,
that for the first instance of late payment during any 12-month period, not to
exceed three (3) instances of late payment during the Term, no late charge shall
be imposed. A late charge shall not be imposed more than once on any particular
installment not paid when due, but imposition of a late charge on any payment
not made when due does not eliminate or supersede late charges imposed on other
(prior) payments not made when due or preclude imposition of a late charge on
other installments or payments not made when due.

16.2 INTEREST. In addition to the late charges referred to above, which
are intended to defray Landlord's costs resulting from late payments, any
payment from Tenant to Landlord not

26.
<PAGE>

paid when due shall at Landlord's option bear interest from the date due until
paid to Landlord by Tenant at the rate of fifteen percent (15%) per annum or the
maximum lawful rate that Landlord may charge to Tenant under applicable laws,
whichever is less (the "INTEREST RATE"). Acceptance of any late charge and/or
interest shall not constitute a waiver of Tenant's default with respect to the
overdue sum or prevent Landlord from exercising any of its other rights and
remedies under this Lease.

17. WAIVER. No provisions of this Lease shall be deemed waived by Landlord
unless such waiver is in a writing signed by Landlord. The waiver by Landlord
of any breach of any provision of this Lease shall not be deemed a waiver of
such provision or of any subsequent breach of the same or any other provision of
this Lease. No delay or omission in the exercise of any right or remedy of
Landlord upon any default by Tenant shall impair such right or remedy or be
construed as a waiver. Landlord's acceptance of any payments of rent due under
this Lease shall not be deemed a waiver of any default by Tenant under this
Lease (including Tenant's recurrent failure to timely pay rent) other than
Tenant's nonpayment of the accepted sums, and no endorsement or statement on any
check or payment or in any letter or document accompanying any check or payment
shall be deemed an accord and satisfaction. Landlord's consent to or approval
of any act by Tenant requiring Landlord's consent or approval shall not be
deemed to waive or render unnecessary Landlord's consent to or approval of any
subsequent act by Tenant.

18. ENTRY, INSPECTION AND CLOSURE. Upon reasonable oral or written notice to
Tenant (and without notice in emergencies), Landlord and its authorized
representatives may enter the Premises at all reasonable times to: (a) determine
whether the Premises are in good condition, (b) determine whether Tenant is
complying with its obligations under this Lease, (c) perform any maintenance or
repair of the Premises or the Building that Landlord has the right or obligation
to perform, (d) install or repair improvements for other tenants where access to
the Premises is required for such installation or repair, (e) serve, post or
keep posted any notices required or allowed under the provisions of this Lease,
(f) show the Premises to prospective brokers, agents, buyers, transferees,
Mortgagees or tenants, or (g) do any other act or thing necessary for the safety
or preservation of the Premises or the Building. When reasonably necessary and
upon 24 hours' notice (except in cases of emergency) Landlord may temporarily
close entrances, doors, corridors, elevators or other facilities in the Building
without liability to Tenant by reason of such closure. Landlord shall conduct
its activities under this Section in a manner that will minimize inconvenience
to Tenant without incurring additional expense to Landlord. In no event shall
Tenant be entitled to an abatement of rent on account of any entry by Landlord
and Landlord shall not be liable in any manner for any inconvenience, loss of
business or other damage to Tenant or other persons arising out of Landlord's
entry on the Premises in accordance with this Section. No action by Landlord
pursuant to this paragraph shall constitute an eviction of Tenant, constructive
or otherwise, entitle Tenant to an abatement of rent or to terminate this Lease
or otherwise release Tenant from any of Tenant's obligations under this Lease.

19. SURRENDER AND HOLDING OVER.

19.1 SURRENDER. Upon the expiration or termination of this Lease, Tenant
shall surrender the Premises and all Tenant Improvements and Alterations to
Landlord broom-clean and in their original condition, except for reasonable wear
and tear, damage from casualty or

27.
<PAGE>

condemnation and any changes resulting from approved Alterations; PROVIDED,
HOWEVER, that prior to the expiration or termination of this Lease Tenant shall,
if requested by Landlord, remove all telephone and other cabling installed in
the Building by Tenant and remove from the Premises all Tenant's personal
property and any Trade Fixtures and all Alterations that Landlord has elected to
require Tenant to remove as provided in Section 6.1 - TENANT IMPROVEMENTS &
ALTERATIONS, and repair any damage caused by such removal. If such removal is
not completed before the expiration or termination of the Term, Landlord shall
have the right (but no obligation) to remove the same, and Tenant shall pay
Landlord on demand for all costs of removal and storage thereof and for the
rental value of the Premises for the period from the end of the Term through the
end of the time reasonably required for such removal. Landlord shall also have
the right to retain or dispose of all or any portion of such property if Tenant
does not pay all such costs and retrieve the property within ten (10) days after
notice from Landlord (in which event title to all such property described in
Landlord's notice shall be transferred to and vest in Landlord). Tenant waives
all Claims against Landlord for any damage or loss to Tenant resulting from
Landlord's removal, storage, retention, or disposition of any such property.
Upon expiration or termination of this Lease or of Tenant's possession,
whichever is earliest, Tenant shall surrender all keys to the Premises or any
other part of the Building and shall deliver to Landlord all keys for or make
known to Landlord the combination of locks on all safes, cabinets and vaults
that may be located in the Premises. Tenant's obligations under this Section
shall survive the expiration or termination of this Lease.

19.2 HOLDING OVER. If Tenant (directly or through any Transferee or other
successor-in-interest of Tenant) remains in possession of the Premises after the
expiration or termination of this Lease, Tenant's continued possession shall be
on the basis of a tenancy at the sufferance of Landlord. No act or omission by
Landlord, other than its specific written consent, shall constitute permission
for Tenant to continue in possession of the Premises, and if such consent is
given or declared to have been given by a court judgment, Landlord may terminate
Tenant's holdover tenancy at any time upon seven (7) days written notice. In
such event, Tenant shall continue to comply with or perform all the terms and
obligations of Tenant under this Lease, except that the monthly Base Rent during
Tenant's holding over shall be 150% of the Base Rent payable in the last full
month prior to the termination hereof. Acceptance by Landlord of rent after
such termination shall not constitute a renewal or extension of this Lease; and
nothing contained in this provision shall be deemed to waive Landlord's right of
re-entry or any other right hereunder or at law. Tenant shall indemnify, defend
and hold Landlord harmless from and against all Claims arising or resulting
directly or indirectly from Tenant's failure to timely surrender the Premises,
including (i) any rent payable by or any loss, cost, or damages claimed by any
prospective tenant of the Premises, and (ii) Landlord's damages as a result of
such prospective tenant rescinding or refusing to enter into the prospective
lease of the Premises by reason of such failure to timely surrender the
Premises.

20. ENCUMBRANCES.

20.1 SUBORDINATION. This Lease is expressly made subject and subordinate
to any mortgage, deed of trust, ground lease, underlying lease or like
encumbrance affecting any part of the Property or any interest of Landlord
therein which is now existing or hereafter executed or recorded ("ENCUMBRANCE");
PROVIDED, HOWEVER, that such subordination shall only be effective, as to future
Encumbrances, if the holder of the Encumbrance agrees that this Lease shall
survive

28.
<PAGE>

the termination of the Encumbrance by lapse of time, foreclosure or otherwise so
long as Tenant is not in default under this Lease. Provided the conditions of
the preceding sentence are satisfied, Tenant shall execute and deliver to
Landlord, within ten (10) days after written request therefor by Landlord and in
a form reasonably requested by Landlord, any additional documents evidencing the
subordination of this Lease with respect to any such Encumbrance and the
nondisturbance agreement of the holder of any such Encumbrance. If the interest
of Landlord in the Property is transferred pursuant to or in lieu of proceedings
for enforcement of any Encumbrance, Tenant shall immediately and automatically
attorn to the new owner, and this Lease shall continue in full force and effect
as a direct lease between the transferee and Tenant on the terms and conditions
set forth in this Lease. Landlord agrees to use reasonable efforts to obtain a
non-disturbance agreement from the holder of the existing Encumbrance under
which the holder of the Encumbrance shall agree that this Lease shall survive
the termination of the Encumbrance by lapse of time, foreclosure, or otherwise
so long as Tenant is not in default under this Lease beyond any applicable cure
period.

20.2 MORTGAGEE PROTECTION. Tenant agrees to give any holder of any
Encumbrance covering any part of the Property ("MORTGAGEE"), by registered mail,
a copy of any notice of default served upon Landlord, provided that prior to
such notice Tenant has been notified in writing (by way of notice of assignment
of rents and leases, or otherwise) of the address of such Mortgagee. If
Landlord shall have failed to cure such default within thirty (30) days from the
effective date of such notice of default, then the Mortgagee shall have an
additional thirty (30) days within which to cure such default or if such default
cannot be cured within that time, then such additional time as may be necessary
to cure such default (including the time necessary to foreclose or otherwise
terminate its Encumbrance, if necessary to effect such cure), and this Lease
shall not be terminated so long as such remedies are being diligently pursued.

21. ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS.

21.1 ESTOPPEL CERTIFICATES.

(a) Within ten (10) days after written request therefor, Tenant shall
execute and deliver to Landlord, in a form provided by or satisfactory to
Landlord, a certificate stating that this Lease is in full force and effect,
describing any amendments or modifications hereto, acknowledging that this Lease
is subordinate or prior, as the case may be, to any Encumbrance and stating any
other information Landlord may reasonably request, including the Term, the
monthly Base Rent, the date to which Rent has been paid, the amount of any
security, deposit or prepaid rent, whether either party hereto is in default
under the terms of the Lease, and whether Landlord has completed its
construction obligations hereunder (if any). Tenant irrevocably constitutes,
appoints and authorizes Landlord as Tenant's special attorney-in-fact for such
purpose to complete, execute and deliver such certificate if Tenant fails timely
to execute and deliver such certificate as provided above. Any person or entity
purchasing, acquiring an interest in or extending financing with respect to the
Property shall be entitled to rely upon any such certificate. If Tenant falls
to deliver such certificate within ten (10) days after Landlord's second written
request therefor, Tenant shall be liable to Landlord for any damages incurred by
Landlord including any profits or other benefits from any financing of the
Property or any interest therein which are lost or made unavailable as a result,
directly or indirectly, of Tenant's failure or refusal to timely execute or
deliver such estoppel certificate.

29.
<PAGE>

(b) Within ten (10) days after written request therefor, Landlord
shall execute and deliver to Tenant, in a form provided by or satisfactory to
Tenant, a certificate stating that this Lease is in full force and effect,
describing any amendments or modifications hereto, acknowledging that this Lease
is subordinate or prior, as the case may be, to any Encumbrance and stating any
other information Tenant may reasonably request, including the Term, the monthly
Base Rent, the date to which Rent has been paid, the amount of any security,
deposit or prepaid rent, and whether either party hereto is in default under the
terms of the Lease.

21.2 FINANCIAL STATEMENTS. Within ten (10) days after written request
therefor, but not more than once a year, Tenant shall deliver to Landlord a copy
of the financial statements (including at least a year end balance sheet and a
statement of profit and loss) of Tenant (and of each guarantor of Tenant's
obligations under this Lease), if any, for each of the three most recently
completed years, prepared in accordance with generally accepted accounting
principles (and, if such is Tenant's normal practice, audited by an independent
certified public accountant), all then available subsequent interim statements,
and such other financial information as may reasonably be requested by Landlord
or required by any Mortgagee.

22. NOTICES. Any notice, demand, request, consent or approval that either party
desires or is required to give to the other party under this Lease shall be in
writing and shall be served personally, delivered by messenger or courier
service, or sent by U.S. certified mail, return receipt requested, postage
prepaid, addressed to the other party at the party's address for notices set
forth in the Basic Lease Information. Any notice required pursuant to any Laws
may be incorporated into, given concurrently with or given separately from any
notice required under this Lease. Notices shall be deemed to have been given
and be effective on the earlier of (a) receipt (or refusal of delivery or
receipt); or (b) one (1) day after acceptance by the independent service for
delivery, if sent by independent messenger or courier service, or three (3) days
after mailing if sent by mail in accordance with this Section. Either party may
change its address for notices hereunder, effective fifteen (15) days after
notice to the other party complying with this Section. If Tenant sublets the
Premises, notices from Landlord shall be effective on the subtenant when given
to Tenant pursuant to this Section.

23. ATTORNEYS' FEES. In the event of any dispute between Landlord and Tenant in
any way related to this Lease, the non-prevailing party shall pay to the
prevailing party all reasonable attorneys' fees and costs and expenses of any
type incurred by the prevailing party in connection with any action or
proceeding (including any appeal and the enforcement of any judgment or award),
whether or not the dispute is litigated or prosecuted to final judgment. The
"prevailing party" shall be determined based upon an assessment of which party's
major arguments or positions taken in the action or proceeding could fairly be
said to have prevailed (whether by compromise, settlement, abandonment by the
other party of its claim or defense, final decision, after any appeals, or
otherwise) over the other party's major arguments or positions on major disputed
issues.

24. QUIET POSSESSION. Subject to Tenant's full and timely performance of all of
Tenant's obligations under this Lease and subject to the terms of this Lease,
including Section 20 - ENCUMBRANCES, Tenant shall have the quiet possession of
the Premises throughout the Term as against any persons or entities lawfully
claiming by, through or under Landlord.

30.
<PAGE>

25. SECURITY MEASURES. Landlord may, but shall be under no obligation to,
implement security measures for the Property, such as the registration or search
of all persons entering or leaving the Building, requiring identification for
access to the Building, evacuation of the Building for cause, suspected cause,
or for drill purposes, the issuance of magnetic pass cards or keys for Building
or elevator access and other actions that Landlord deems necessary or
appropriate to prevent any threat of property loss or damage, bodily injury or
business interruption; PROVIDED, HOWEVER, that such measures shall be
implemented in a way as not to inconvenience tenants of the Building
unreasonably. Landlord uses an access card system for access to the Building
garage, and has waived the standard requirement of a $25 deposit for each
after-hours Building garage access card issued to Tenant. However, Tenant shall
be responsible for any loss, theft or breakage of any such cards, which must be
returned by Tenant to Landlord upon expiration or earlier termination of the
Lease. Tenant shall pay Landlord the replacement charge (currently $25) for any
card not so returned. Landlord shall at all times have the right to change,
alter or reduce any such security services or measures. Tenant shall cooperate
and comply with, and cause Tenant's Representatives and Visitors to cooperate
and comply with, such security measures. Landlord, its agents and employees
shall have no liability to Tenant or its Representatives or Visitors for the
implementation or exercise of, or the failure to implement or exercise, any such
security measures or for any resulting disturbance of Tenant's use or enjoyment
of the Premises.

26. FORCE MAJEURE. If Tenant or Landlord is delayed, interrupted or prevented
from performing any of its obligations under this Lease, including Landlord's
obligations under the Construction Rider, and such delay, interruption or
prevention is due to fire, act of God, governmental act, strike, labor dispute,
unavailability of materials or any other cause outside the reasonable control of
Tenant or Landlord, excepting Tenant's financial inability, then the time for
performance of the affected obligations of such party shall be extended for a
period equivalent to the period of such delay, interruption or prevention.

27. RULES AND REGULATIONS. Tenant shall be bound by and shall comply with the
rules and regulations attached to and made a part of this Lease as EXHIBIT C to
the extent those rules and regulations are not in conflict with the terms of
this Lease, as well as any reasonable rules and regulations hereafter adopted by
Landlord for all tenants of the Building, upon notice to Tenant thereof
(collectively, the "BUILDING RULES"). Landlord shall not be responsible to
Tenant or to any other person for any violation of, or failure to observe, the
Building Rules by any other tenant or other person.

28. LANDLORD'S LIABILITY. The term "Landlord," as used in this Lease, shall
mean only the owner or owners of the Building at the time in question. In the
event of any conveyance of title to the Building, then from and after the date
of such conveyance, the transferor Landlord shall be relieved of all liability
with respect to Landlord's obligations to be performed under this Lease after
the date of such conveyance. Notwithstanding any other term or provision of
this Lease, the liability of Landlord for its obligations under this Lease is
limited solely to Landlord's interest in the Building as the same may from time
to time be encumbered, and no personal liability, shall at any time be asserted
or enforceable against any other assets of Landlord or against Landlord's
partners or members or its or their respective partners, shareholders, members,
directors, officers or managers on account of any of Landlord's obligations or
actions under this Lease.

31.
<PAGE>

29. CONSENTS AND APPROVALS.

29.1 DETERMINATION IN GOOD FAITH. Wherever the consent, approval, judgment
or determination of Landlord is required or permitted under this Lease, Landlord
may exercise its good faith business judgment in granting or withholding such
consent or approval or in making such judgment or determination without
reference to any extrinsic standard of reasonableness, unless the specific
provision contained in this Lease providing for such consent, approval, judgment
or determination specifies that Landlord's consent or approval is not to be
unreasonably withheld, or that such judgment or determination is to be
reasonable, or otherwise specifies the standards under which Landlord may
withhold its consent. If it is determined that Landlord failed to give its
consent where it was required to do so under this Lease, Tenant shall be
entitled to injunctive relief but shall not to be entitled to monetary damages
or to terminate this Lease for such failure.

29.2 NO LIABILITY IMPOSED ON LANDLORD. The review and/or approval by
Landlord of any item or matter to be reviewed or approved by Landlord under the
terms of this Lease or any Exhibits or Addenda hereto shall not impose upon
Landlord any liability for the accuracy or sufficiency of any such item or
matter or the quality or suitability of such item for its intended use. Any
such review or approval is for the sole purpose of protecting Landlord's
interest in the Property, and no third parties, including Tenant or the
Representatives and Visitors of Tenant or any person or entity claiming by,
through or under Tenant, shall have any rights as a consequence thereof.

30. BROKERS. Landlord shall pay the fee or commission of the broker or brokers
identified in the Basic Lease Information (the "BROKER") in accordance with
Landlord's separate written agreement with the Broker, if any. Landlord and
Tenant warrant and represent to each other that in the negotiating or making of
the lease, neither Tenant nor Landlord nor anyone acting on their behalf has
dealt with any real estate broker or finder who might be entitled to a fee or
commission for this Lease other than the Broker. Landlord and Tenant each agree
to indemnify and hold each other harmless from the claim or claims, including
costs, expenses and attorneys fees incurred by the party seeking
indemnification, asserted by any other broker or finder for a fee or commission
based upon any dealings with or statements made by the other party or its
representatives.

31. INTENTIONALLY OMITTED

32. ENTIRE AGREEMENT. This Lease, including the Exhibits and any Addenda
attached hereto, and the documents referred to herein, if any, constitute the
entire agreement between Landlord and Tenant with respect to the leasing of
space by Tenant in the Building, and supersede all prior or contemporaneous
agreements, understandings, proposals and other representations by or between
Landlord and Tenant, whether written or oral, all of which are merged herein.
Neither Landlord nor Landlord's agents have made any representations or
warranties with respect to the Premises, the Building, the Project or this Lease
except as expressly set forth herein, and no rights, easements or licenses shall
be acquired by Tenant by implication or otherwise unless expressly set forth
herein. The submission of this Lease for examination does not constitute an
option for the Premises and this Lease shall become effective as a binding
agreement only upon execution and delivery thereof by Landlord to Tenant.

32.
<PAGE>

33. MISCELLANEOUS. This Lease may not be amended or modified except by a
writing signed by Landlord and Tenant. Subject to Section 14 - ASSIGNMENT AND
SUBLETTING and Section 28 - LANDLORD'S LIABILITY, this Lease shall be binding on
and shall inure to the benefit of the parties and their respective successors,
assigns and legal representatives. The determination that any provisions hereof
may be void, invalid, illegal or unenforceable shall not impair any other
provisions hereof and all such other provisions of this Lease shall remain in
full force and effect. The unenforceability, invalidity or illegality of any
provision of this Lease under particular circumstances shall not render
unenforceable, invalid or illegal other provisions of this Lease, or the same
provisions under other circumstances. This Lease shall be construed and
interpreted in accordance with the laws (excluding conflict of laws principles)
of the State in which the Building is located. The provisions of this Lease
shall be construed in accordance with the fair meaning of the language used and
shall not be strictly construed against either party, even if such party drafted
the provision in question. When required by the context of this Lease, the
singular includes the plural. Wherever the term "including" is used in this
Lease, it shall be interpreted as meaning "including, but not limited to" the
matter or matters thereafter enumerated. The captions contained in this Lease
are for purposes of convenience only and are not to be used to interpret or
construe this Lease. If more than one person or entity is identified as Tenant
hereunder, the obligations of each and all of them under this Lease shall be
joint and several. Time is of the essence with respect to this Lease, except as
to the conditions relating to the delivery of possession of the Premises to
Tenant. Neither Landlord nor Tenant shall record this Lease.

34. AUTHORITY. If Tenant is a corporation, partnership, limited liability
company or other form of business entity, each of the persons executing this
Lease on behalf of Tenant warrants and represents that Tenant is a duly
organized and validly existing entity, that Tenant has full right and authority
to enter into this Lease and that the persons signing on behalf of Tenant are
authorized to do so and have the power to bind Tenant to this Lease. Tenant
shall provide Landlord upon request with evidence reasonably satisfactory to
Landlord confirming the foregoing representations.

33.
<PAGE>

IN WITNESS WHEREOF, Landlord and Tenant have entered into this Lease as of
the date first above written.

TENANT: LANDLORD:

SCIENTIFIC LEARNING CORPORATION, GBC-UNIVERSITY ASSOCIATES, L.P.,
A Delaware corporation A California limited partnership

By: Opportunity Capital Partners,
By: /s/ Frank Mattson a California limited partnership
---------------------------- Administrative General Partner
Name: Frank Mattson
---------------------- By: Office Opportunity Corporation,
Title: CFO a California limited partnership
--------------------- Administrative General Partner

By: By: /s/ John Hamilton
---------------------------- ---------------------------------
Name: Name: John Hamilton
---------------------- ---------------------------
Title: Title:
--------------------- --------------------------

By: /s/ [signature]
---------------------------------
Name: [name]
---------------------------
Title: CFO
--------------------------

34.
<PAGE>

EXHIBIT A

ATTACHED TO AND FORMING A PART OF
LEASE AGREEMENT
DATED AS OF JULY 8, 1997
BETWEEN
GBC-UNIVERSITY ASSOCIATES, AS LANDLORD,
AND
SCIENTIFIC LEARNING CORPORATION, AS TENANT ("LEASE")

THE PREMISES

INITIALS:

Landlord [INIT]
Tenant [INIT]

1.
<PAGE>

EXHIBIT B

ATTACHED TO AND FORMING A PART OF
LEASE AGREEMENT
DATED AS OF JULY 8, 1997
BETWEEN
GBC-UNIVERSITY ASSOCIATES, AS LANDLORD,
AND
SCIENTIFIC LEARNING CORPORATION, AS TENANT ("LEASE")

CONSTRUCTION RIDER

1. TENANT IMPROVEMENTS. Landlord shall with reasonable diligence through
a contractor designated by Landlord (which contractor may be an affiliate of
Landlord) cause to be installed in the Premises new building standard carpet and
shall cause all interior walls in the Premises to be painted with building
standard paint (the foregoing are hereinafter referred to as the "TENANT
IMPROVEMENTS") in good and workmanlike manner, and in compliance with all
applicable laws, codes and regulations. Upon request by Landlord, Tenant shall
designate in writing an individual authorized to act as Tenant's Representative
with respect to all approvals, directions and authorizations pursuant to this
Construction Rider.

Following execution of this Lease, Landlord shall proceed with reasonable
diligence to cause the Tenant Improvements to be Substantially Completed on or
prior to the Scheduled Commencement Date. The Tenant Improvements shall be
deemed to be "SUBSTANTIALLY COMPLETED" when they have been completed in
accordance with the Final Construction Documents except for finishing details,
minor omissions, decorations and mechanical adjustments of the type normally
found on an architectural "punch list". (The definition of Substantially
Completed shall also define the terms "SUBSTANTIAL COMPLETION" and
"SUBSTANTIALLY COMPLETE.")

Following Substantial Completion of the Tenant Improvements and before
Tenant takes possession of the Premises (or as soon thereafter as may be
reasonably practicable and in any event within 30 days after Substantial
Completion), Landlord and Tenant shall inspect the Premises and jointly prepare
a "punch list" of agreed items of construction remaining to be completed.
Landlord shall complete the items set forth in the punch list as soon as
reasonably possible. Tenant shall cooperate with and accommodate Landlord and
Landlord's contractor in completing the items on the punch list.

1.3. COST OF TENANT IMPROVEMENTS. Landlord shall pay the cost of the
Tenant Improvements described in Section 1 above. If Tenant requests any
additional work the same shall be at Tenant's sole cost ("ADDITIONAL COST"),
including, but not limited to, usual markups for overhead, supervision and
profit. Tenant shall pay Landlord 50% of any Additional Cost based upon the
Final Cost Estimate prior to the commencement of construction of the Tenant
Improvements. The balance of the actual Additional Cost shall be paid to
Landlord upon Substantial Completion of the Tenant Improvements, within ten (10)
days after receipt of Landlord's invoice therefor. Landlord will use reasonable
care in preparing the cost estimates,

1.
<PAGE>

but they are estimates only and do not limit Tenant's obligation to pay for the
actual Additional Cost of the Tenant Improvements, whether or not it exceeds the
estimated amounts.

1.4. CHANGES. If Tenant requests any change, addition or alteration
in or to any Final Construction Documents ("CHANGES") Landlord shall cause the
Space Planner to prepare additional Plans implementing such Change. Tenant
shall pay the cost of preparing additional Plans within ten (10) days after
receipt of Landlord's invoice therefor. As soon as practicable after the
completion of such additional Construction Documents, Landlord shall notify
Tenant of the estimated cost of the Changes. Within three (3) working days
after receipt of such cost estimate, Tenant shall notify Landlord in writing
whether Tenant approves the Change. If Tenant approves the Change, Landlord
shall proceed with the Change and Tenant shall be liable for any Additional Cost
resulting from the Change. If Tenant fails to approve the Change within such
three (3) day period, construction of the Tenant Improvements shall proceed as
provided in accordance with the original Construction Documents.

1.5. DELAYS. Tenant shall be responsible for, and shall pay to
Landlord, any and all costs and expenses reasonably incurred by Landlord in
connection with any delay in the commencement or completion of any Tenant
Improvements and any increase in the cost of Tenant Improvements caused by (i)
Tenant's failure to submit information to the Space Planner or approve any Space
Plan, Construction Documents or cost estimates within the time periods required
herein, (ii) any delays in obtaining any items or materials constituting part of
the Tenant Improvements requested by Tenant, (iii) any Changes, or (iv) any
other delay requested or caused by Tenant (collectively, "TENANT DELAYS").

2. DELIVERY OF PREMISES. Upon Substantial Completion of the Tenant
Improvements, Landlord shall deliver possession of the Premises to Tenant. If
Landlord has not Substantially Completed the Tenant Improvements and tendered
possession of the Premises to Tenant on or before the Scheduled Commencement
Date specified in Section 2 - TERM; POSSESSION of the Lease, or if Landlord is
unable for any other reason to deliver possession of the Premises to Tenant on
or before such date, neither Landlord nor its representatives shall be liable to
Tenant for any damage resulting from the delay in completing such construction
obligations and/or delivering possession to Tenant and the Lease shall remain in
full force and effect unless and until it is terminated under the express
provisions of this Paragraph or the Lease. If any delays in Substantially
Completing the Tenant Improvements are attributable to Tenant Delays, then the
Premises shall be deemed to have been Substantially Completed and delivered to
Tenant on the date on which Landlord could have Substantially Completed the
Premises and tendered the Premises to Tenant but for such Tenant Delays.

Notwithstanding the foregoing, if the Commencement Date has not occurred or
been deemed to have occurred within four (4) months after the Scheduled
Commencement Date, either party, by written notice to the other party given
within ten (10) days after the expiration of such four (4) month period, may
terminate this Lease without any liability to the other party. If Tenant fails
to perform any of Tenant's obligations under this Construction Rider within the
time periods specified herein, Landlord may, in lieu of terminating the Lease
under the foregoing provisions, treat such failure of performance as an Event of
Default under the Lease.

2.
<PAGE>

3. ACCESS TO PREMISES. Landlord shall allow Tenant and Tenant's
Representatives to enter the Premises prior to the Commencement Date to permit
Tenant to make the Premises ready for its use and occupancy; PROVIDED, HOWEVER,
that prior to such entry of the Premises, Tenant shall provide evidence
reasonably satisfactory to Landlord that Tenant's insurance, as described in
Section 11.1 - TENANT'S INSURANCE of the Lease, shall be in effect as of the
time of such entry. Such permission may be revoked at any time upon twenty-four
(24) hours' notice, and Tenant and its Representatives shall not interfere with
Landlord or Landlord's contractor in completing the Building or the Tenant
Improvements.

Tenant agrees that Landlord shall not be liable in any way for any injury,
loss or damage which may occur to any of Tenant's property placed upon or
installed in the Premises prior to the Commencement Date, the same being at
Tenant's sole risk, and Tenant shall be liable for all injury, loss or damage to
persons or property arising as a result of such entry into the Premises by
Tenant or its Representatives.

4. OWNERSHIP OF TENANT IMPROVEMENTS. All Tenant Improvements, whether
installed by Landlord or Tenant, shall become a part of the Premises, shall be
the property of Landlord and, subject to the provisions of the Lease, shall be
surrendered by Tenant with the Premises, without any compensation to Tenant, at
the expiration or termination of the Lease in accordance with the provisions of
the Lease.

INITIALS:

Landlord [INIT]
Tenant [INIT]

3.
<PAGE>
EXHIBIT C

ATTACHED TO AND FORMING A PART OF
LEASE AGREEMENT
DATED AS OF JULY 8, 1997
BETWEEN
GBC-UNIVERSITY ASSOCIATES, AS LANDLORD,
AND
SCIENTIFIC LEARNING CORPORATION, AS TENANT ("LEASE")

BUILDING RULES

The following Building Rules are additional provisions of the foregoing
Lease to which they are attached. The capitalized terms used herein have the
same meanings as these terms are given in the Lease.

1. USE OF COMMON AREAS. Tenant will not obstruct the sidewalks, halls,
passages, exits, entrances, elevators of stairways of the Building ("COMMON
AREAS"), and Tenant will not use the Common Areas for any purpose other than
ingress and egress to and from the Premises. The Common Areas, except for the
sidewalks, are not open to the general public and Landlord reserves the right to
control and prevent access to the Common Areas of any person whose presence, in
Landlord's opinion, would be prejudicial to the safety, reputation and interests
of the Building and its tenants.

2. NO ACCESS TO ROOF. Tenant has no right of access to the roof of the
Building and will not install, repair or replace any antenna, aerial, aerial
wires, fan, air-conditioner or other device on the roof of the Building, without
the prior written consent of Landlord. Any such device installed without such
written consent is subject to removal at Tenant's expense without notice at any
time. In any event Tenant will be liable for any damages or repairs incurred or
required as a result of its installation, use, repair, maintenance or removal of
such devices on the roof and agrees to indemnify and hold harmless Landlord from
any liability, loss, damage, cost or expense, including reasonable attorneys'
fees, arising from any activities of Tenant or of Tenant's Representatives on
the roof of the Building.

3. SIGNAGE. No sign, placard, picture, name, advertisement or notice
visible from the exterior of the Premises will be inscribed, painted, affixed or
otherwise displayed by Tenant on or in any part of the Building without the
prior written consent of Landlord. Landlord reserves the right to adopt and
furnish Tenant with general guidelines relating to signs in or on the Building.
All approved signage will be inscribed, painted or affixed at Tenant's expense
by a person approved by Landlord, which approval will not be unreasonably
withheld.

4. PROHIBITED USES. The Premises will not be used for manufacturing, for
the storage of merchandise held for sale to the general public, for lodging or
for the sale of goods to the general public. Tenant will not permit any
commercial food preparation on the Premises except that Tenant may use
Underwriters' Laboratory approved equipment for brewing coffee, tea, hot
chocolate and similar beverages and for heating food in a microwave oven,
toaster or

1.
<PAGE>

toaster oven, so long as such use is in accordance with all applicable federal,
state and city laws, codes, ordinances, rules and regulations.

5. JANITORIAL SERVICES. Tenant will not employ any person for the
purpose of cleaning the Premises or permit any person to enter the Building for
such purpose other than Landlord's janitorial service, except with Landlord's
prior written consent. Tenant will not necessitate, and will be liable for the
cost of, any undue amount of janitorial labor by reason of Tenant's carelessness
in or indifference to the preservation of good order and cleanliness in the
Premises. Janitorial service will not be furnished to areas in the Premises on
nights when such areas are occupied after 9:30 p.m., unless such service is
extended by written agreement to a later hour in specifically designated areas
of the Premises.

6. KEYS AND LOCKS. Landlord will furnish Tenant, free of charge, two
keys to each door or lock in the Premises. Landlord may make a reasonable
charge for any additional or replacement keys. Tenant will not duplicate any
keys, alter any locks or install any new or additional lock or bolt on any door
of its Premises or on any other part of the Building without the prior written
consent of Landlord and, in any event, Tenant will provide Landlord with a key
for any such lock. On the termination of the Lease, Tenant will deliver to
Landlord all keys to any locks or doors in the Building which have been obtained
by Tenant.

7. FREIGHT. Upon not less than twenty-four hours prior notice to
Landlord, which notice may be oral, an elevator will be made available for
Tenant's use for transportation of freight, subject to such scheduling as
Landlord in its discretion deems appropriate. Tenant shall not transport
freight in loads exceeding the weight limitations of such elevator. Landlord
reserves the right to prescribe the weight, size and position of all equipment,
materials, furniture or other property brought into the Building, and no
property will be received in the Building or carried up or down the freight
elevator or stairs except during such hours and along such routes and by such
persons as may be designated by Landlord. Landlord reserves the right to
require that heavy objects will stand on wood strips of such length and
thickness as is necessary to properly distribute the weight. Landlord will not
be responsible for loss of or damage to any such property from any cause, and
Tenant will be liable for all damage or injuries caused by moving or maintaining
such property.

8. NUISANCES AND DANGEROUS SUBSTANCES. Tenant will not conduct itself or
permit Tenant's Representatives or Visitors to conduct themselves, in the
Premises or anywhere on or in the Property in a manner which is offensive or
unduly annoying to any other Tenant or Landlord's property managers. Tenant
will not install or operate any phonograph, radio receiver, musical instrument,
or television or other similar device in any part of the Common Areas and shall
not operate any such device installed in the Premises in such manner as to
disturb or annoy other tenants of the Building. Tenant will not use or keep in
the Premises or the Property any kerosene, gasoline or other combustible fluid
or material other than limited quantities thereof reasonably necessary for the
maintenance of office equipment, or, without Landlord's prior written approval,
use any method of heating or air conditioning other than that supplied by
Landlord. Tenant will not use or keep any foul or noxious gas or substance in
the Premises or permit or suffer the Premises to be occupied or used in a manner
offensive or objectionable to Landlord or other occupants of the Building by
reason of noise, odors or vibrations, or interfere

2.
<PAGE>

in any way with other tenants or those having business therein. Tenant will not
bring or keep any animals in or about the Premises or the Property.

9. BUILDING NAME AND ADDRESS. Without Landlord's prior written consent,
Tenant will not use the name of the Building in connection with or in promoting
or advertising Tenant's business except as Tenant's address.

10. BUILDING DIRECTORY. A directory for the Building will be provided for
the display of the name and location of tenants. Landlord reserves the right to
approve any additional names Tenant desires to place in the directory and, if so
approved, Landlord may assess a reasonable charge for adding such additional
names.

11. WINDOW COVERINGS. No curtains, draperies, blinds, shutters, shades,
awnings, screens or other coverings, window ventilators, hangings, decorations
or similar equipment shall be attached to, hung or placed in, or used in or with
any window of the Building without the prior written consent of Landlord, arid
Landlord shall have the right to control all lighting within the Premises that
may be visible from the exterior of the Building.

12. FLOOR COVERINGS. Tenant will not lay or otherwise affix linoleum,
tile, carpet or any other floor covering to the floor of the Premises in any
manner except as approved in writing by Landlord. Tenant will be liable for the
cost of repair of any damage resulting from the violation of this rule or the
removal of any floor covering by Tenant or its contractors, employees or
invitees.

13. WIRING AND CABLING INSTALLATIONS. Landlord will direct Tenant's
electricians and other vendors as to where and how data, telephone, and
electrical wires and cables are to be installed. No boring or cutting for wires
or cables will be allowed without the prior written consent of Landlord. The
location of burglar alarms, smoke detectors, telephones, call boxes and other
office equipment affixed to the Premises shall be subject to the written
approval of Landlord.

14. OFFICE CLOSING PROCEDURES. Tenant will see that the doors of the
Premises are closed and locked and that all water faucets, water apparatus and
utilities are shut off before Tenant or its employees leave the Premises, so as
to prevent waste or damage. Tenant will be liable for all damage or injuries
sustained by other tenants or occupants of the Building or Landlord resulting
from Tenant's carelessness in this regard or violation of this rule. Tenant
will keep the doors to the Building corridors closed at all times except for
ingress and egress.

15. PLUMBING FACILITIES. The toilet rooms, toilets, urinals, wash bowls
and other apparatus shall not be used for any purpose other than that for which
they were constructed and no foreign substance of any kind whatsoever shall be
disposed of therein. Tenant will be liable for any breakage, stoppage or damage
resulting from the violation of this rule by Tenant, its employees or invitees.

16. USE OF HAND TRUCKS. Tenant will not use or permit to be used in the
Premises or in the Common Areas any hand tracks, carts or dollies except those
equipped with rubber tires and side guards or such other equipment as Landlord
may approve.

3.
<PAGE>

17. REFUSE. Tenant shall store all Tenant's trash and garbage within the
Premises or in other facilities designated By Landlord for such purpose. Tenant
shall not place in any trash box or receptacle any material which cannot be
disposed of in the ordinary and customary manner of removing and disposing of
trash and garbage in the city in which the Building is located without being in
violation of any law or ordinance governing such disposal. All trash and
garbage removal shall be made in accordance with directions issued from time to
time by Landlord, only through such Common Areas provided for such purposes and
at such times as Landlord may designate. Tenant shall comply with the
requirements of any recycling program adopted by Landlord for the Building.

18. SOLICITING. Canvassing, peddling, soliciting and distribution of
handbills or any other written materials in the Building are prohibited, and
Tenant will cooperate to prevent the same.

19. PARKING. Tenant will use, and cause Tenant's Representatives and
Visitors to use, any parking spaces to which Tenant is entitled under the Lease
in a manner consistent with Landlord's directional signs and markings in the
Parking Facility. Specifically, but without limitation, Tenant will not park,
or permit Tenant's Representatives or Visitors to park, in a manner that impedes
access to and from the Building or the Parking Facility or that violates space
reservations for handicapped drivers registered as such with the California
Department of Motor Vehicles. Landlord may use such reasonable means as may be
necessary to enforce the directional signs and markings in the Parking Facility,
including but not limited to towing services, and Landlord will not be liable
for any damage to vehicles towed as a result of non-compliance with such parking
regulations.

20. FIRE, SECURITY AND SAFETY REGULATIONS. Tenant will comply with all
safety, security, fire protection and evacuation measures and procedures
established by Landlord or any governmental agency.

21. RESPONSIBILITY FOR THEFT. Tenant assumes any and all responsibility
for protecting the Premises from theft, robbery and pilferage, which includes
keeping doors locked and other means of entry to the Premises closed.

22. SALES AND AUCTIONS. Tenant will not conduct or permit to be conducted
any sale by auction in, upon or from the Premises or elsewhere in the Property,
whether said auction be voluntary, involuntary, pursuant to any assignment for
the payment of creditors or pursuant to any bankruptcy or other insolvency
proceeding.

23. WAIVER OF RULES. Landlord may waive any one or more of these Building
Rules for the benefit of any particular tenant or tenants, but no such waiver by
Landlord will be construed as a waiver of such Building Rules in favor of any
other tenant or tenants nor prevent Landlord from thereafter enforcing these
Building Rules against any or all of the tenants of the Building.

24. EFFECT ON LEASE. These Building Rules are in addition to, and shall
not be construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements and conditions of the Lease. Continued violation of these
Building Rules following receipt of

4.
<PAGE>

written notice constitutes a failure to fully perform the provisions of the
Lease, as referred to in Section 15.1 - "EVENTS OF DEFAULT".

25. NON-DISCRIMINATORY ENFORCEMENT. Subject to the provisions of the
Lease (and the provisions of other leases with respect to other tenants),
Landlord shall use reasonable efforts to enforce these Building Rules in a
non-discriminatory manner, but in no event shall Landlord have any liability for
any failure or refusal to do so (and Tenant's sole and exclusive remedy for any
such failure or refusal shall be injunctive relief preventing Landlord from
enforcing any of the Building Rules against Tenant in a manner that
discriminates against Tenant).

26. ADDITIONAL AND AMENDED RULES. Landlord reserves the right to rescind
or amend these Building Rules and/or adopt any other and reasonable rules and
regulations as in its judgment may from time to time be needed for the safety,
care and cleanliness of the Building and for the preservation of good order
therein.

INITIALS:

Landlord [INIT]
Tenant [INIT]

5.
<PAGE>
EXHIBIT D

ATTACHED TO AND FORMING A PART OF
LEASE AGREEMENT
DATED AS OF JULY 8, 1997
BETWEEN
GBC-UNIVERSITY ASSOCIATES, AS LANDLORD,
AND
SCIENTIFIC LEARNING CORPORATION, AS TENANT ("LEASE")

ADDITIONAL PROVISIONS RIDER

1. PARKING.

(a) TENANT'S PARKING RIGHTS. Landlord shall provide Tenant, on an
unassigned and non-exclusive basis, for use by Tenant and Tenant's
Representatives and Visitors, at the users' sole risk, up to sixty-eight (68)
parking spaces in the Parking Facility which spaces shall be available at the
then prevailing monthly charge which is currently $80.00 per month per parking
space. If Tenant leases additional office space pursuant to this Lease,
Landlord shall provide Tenant, also on an unassigned, non-exclusive and
unlabelled basis, one (1) additional parking space in the Parking Facility for
each two hundred fifty (250) rentable square feet of additional office space
leased to Tenant. The parking spaces to be made available to Tenant hereunder
may contain a reasonable mix of spaces for compact cars and up to ten percent
(10%) of the unassigned spaces may also be designated by Landlord as Building
visitors' parking.

(b) AVAILABILITY OF PARKING SPACES. Landlord shall take reasonable
actions to ensure the availability of the parking spaces leased by Tenant, but
Landlord does not guarantee the availability of those spaces at all times
against the actions of other tenants of the Building and users of the Parking
Facility. Access to the Parking Facility may, at Landlord's option, be
regulated by card, pass, bumper sticker, decal or other appropriate
identification issued by Landlord. Landlord retains the right to revoke the
parking privileges of any user of the Parking Facility who violates the rules
and regulations governing use of the Parking Facility (and Tenant shall be
responsible for causing any employee of Tenant or other person using parking
spaces allocated to Tenant to comply with all parking rules and regulations).

(c) ASSIGNMENT AND SUBLETTING. Notwithstanding any other provision
of the Lease to the contrary, Tenant shall not assign its rights to the parking
spaces or any interest therein, or sublease or otherwise allow the use of all or
any part of the parking spaces to or by any other person, except in connection
with a permitted assignment or sublease, or except with Landlord's prior written
consent, which may be granted or withheld by Landlord in its sole discretion.
In the event of any separate assignment or sublease of parking space rights that
is approved by Landlord, Landlord shall be entitled to receive, as additional
Rent hereunder, one hundred percent (100%) of any profit received by Tenant in
connection with such assignment or sublease.

1.
<PAGE>

(d) CONDEMNATION, DAMAGE OR DESTRUCTION. In the event the Parking
Facility is the subject of a Condemnation, or is damaged or destroyed, and this
Lease is not terminated, and if in such event the available number of parking
spaces in the Parking Facility is permanently reduced, then Tenant's rights to
use parking spaces hereunder may, at the election of Landlord, thereafter be
reduced in proportion to the reduction of the total number of parking spaces in
the Parking Facility. In such event, Landlord reserves the right to reduce the
number of parking spaces to which Tenant is entitled or to relocate some or all
of the parking spaces to which Tenant is entitled to other areas in the Parking
Facility.

2. EXTENSION OPTION.

Provided that Scientific Learning Corporation has not assigned this
Lease or sublet any or all of the Premises (it being intended that all rights
pursuant to this provision are and shall be personal to the original Tenant
under this Lease and shall not be transferable or exercisable for the benefit of
any Transferee, except for Transfers to Affiliates permitted under Section
14.9), and provided Tenant is not in default beyond any applicable cure period
under this Lease at the time of exercise or at any time thereafter until the
beginning of any such extension of the Term, Tenant shall have the option (the
"EXTENSION OPTION") to extend the Term for one (1) additional consecutive period
of five (5) years (each an "EXTENSION PERIOD"), by giving written notice to
Landlord of the exercise of any such Extension Option at least nine (9) months,
but not more than twelve (12) months, prior to the expiration of the initial
Term. The exercise of any Extension Option by Tenant shall be irrevocable and
shall cover the entire Premises leased by Tenant pursuant to this Lease. Upon
such exercise, the term of the Lease shall automatically be extended for the
applicable Extension Period without the execution of any further instrument by
the parties; provided that Landlord and Tenant shall, if requested by either
party, execute and acknowledge an instrument confirming the exercise of the
Extension Option. Any Extension Option shall terminate if not exercised
precisely in the manner provided herein. Any extension of the Term shall be
upon all the terms and conditions set forth in this Lease and all Exhibits
thereto, except that: (i) Tenant shall have no further option to extend the Term
of the Lease, other than as specifically set forth herein; (ii) Landlord shall
not be obligated to contribute funds toward the cost of any remodeling,
renovation, alteration or improvement work in the Premises; and (iii) Base Rent
for any such Extension Period shall be ninety-five percent (95%) of the then
Fair Market Base Rental (as defined below) for the Premises for the space and
term involved, which shall be determined as set forth below.

(a) "FAIR MARKET BASE RENTAL" shall mean the "fair market" Base Rent
at the time or times in question for the applicable space, based on the
prevailing rentals then being charged to new tenants in the Building and new
tenants in other office buildings in the general vicinity of the Building of
comparable size, location, quality and age as the Building for leases with terms
equal to the Extension Period, taking into account the creditworthiness and
financial strength of the tenant, the financial guaranties provided by the
tenant (if any), the value of market landlord concessions (including the value
of construction, renovation, moving and other allowances or rent credits), the
desirability, location in the building, size and quality of the space. tenant
finish allowance and/or tenant improvements, included services, operating
expenses and tax and expense stops or other escalation clauses, and brokerage
commissions, for the space in the Building for which Fair Market Base Rental is
being determined and for comparable space in the buildings which are being used
for comparison. Fair Market Base Rental shall also reflect

2.
<PAGE>

the then prevailing rental structure for comparable office buildings in the
general vicinity of the Property, so that if, for example, at the time Fair
Market Base Rental is being determined the prevailing rental structure for
comparable space and for comparable lease terms includes periodic rental
adjustments or escalations, Fair Market Base Rental shall reflect such rental
structure.

(b) Landlord and Tenant shall endeavor to agree upon the Fair Market
Base Rental. If they are unable to so agree within thirty (30) days after
receipt by Landlord of Tenant's notice of exercise of the Extension Option, then
within ten (10) days after the expiration of that period each party, at its cost
and by giving written notice to the other party, shall appoint a licensed real
estate broker with at least five (5) years of experience in leasing office
buildings, and who is active in the leasing of office space in the general
vicinity of the Property. If a party does not appoint a broker within ten (10)
days after the other party has given written notice of the name of its broker,
the single broker appointed shall be the sole broker and shall determine the
Fair Market Base Rental. If the two brokers are appointed by the parties as
stated in this paragraph, they shall meet promptly and attempt to determine the
Fair Market Base Rental. If they are unable to agree within thirty (30) days
after the second broker has been appointed, they shall attempt to elect a third
broker meeting the qualifications stated in this paragraph within ten (10) days
after the last day the two brokers are given to determine the Fair Market Base
Rental. If they are unable to agree on the third broker, either of the parties
to this Lease, by giving ten (10) days' prior written notice to the other party,
can apply to the then president of the county real estate board of the county in
which the premises are located, or to the presiding judge of the superior court
of that county, for the selection of a third broker who meets the qualifications
stated in this paragraph. Each of the parties shall bear the fees and costs of
its own broker, and one-half of the cost of appointing the third broker and of
paying the third broker's fees and costs. The third broker, however selected,
shall be a person who has not previously acted as an exclusive agent for either
party.

Within thirty (30) days after the selection of the third broker, a majority
of the brokers shall determine the Fair Market Base Rental. If a majority of
the brokers are unable to determine the Fair Market Base Rental within the
stipulated period of time, the three appraisals shall be added together and
their total divided by three; the resulting quotient shall be the Fair Market
Base Rental; PROVIDED, HOWEVER, that if the low appraisal is more than ten
percent (10%) lower than the middle appraisal, the low appraisal shall be
disregarded, and if the high appraisal is more than ten percent (10%) higher
than the middle appraisal, the high appraisal shall be disregarded. If one
appraisal is disregarded, the remaining two appraisals shall be added together
and their total divided by two; and the resulting quotient shall be the Fair
Market Base Rental. After the Fair Market Base Rental has been determined, the
brokers shall immediately notify the parties.

(c) In the event the Fair Market Base Rental for any Extension Period
has not been determined at such time as Tenant is obligated to pay Base Rent for
such Extension Period, Tenant shall pay as Base Rent pending such determination,
the Base Rent in effect for such space immediately prior to the Extension
Period; PROVIDED, that upon the determination of the applicable Fair Market Base
Rental, any shortage of Base Rent paid shall be paid to Landlord by Tenant.

3.
<PAGE>

(d) In no event shall the Base Rent during any Extension Period be
less than $2.17, which is the average effective Base Rent in effect over the
original Term, PLUS the average monthly Tenant's Share of Operating Costs and
Taxes payable by Tenant pursuant to Section 3.2(b)(1) for the twelve (12) month
period prior to such Extension Period.

(e) The term of this Lease, whether consisting of the Initial Term
alone or the Initial Term as extended by any Extension Period (if any Extension
Option is exercised), is referred to in this Lease as the "Term."

3. LETTER OF CREDIT.

(a) Tenant shall deliver to Landlord a clean, unconditional
irrevocable, transferable letter of credit (the "Letter of Credit") in form, and
issued by a financial institution ("ISSUER") satisfactory to Landlord. The
Letter of Credit shall be provided to Landlord prior to the Commencement Date
and Tenant taking occupancy of the Premises under the Lease, and shall be in the
amount of $350,000.00, name Landlord as the beneficiary thereunder, and provide
that draws thereunder will be honored upon receipt by Issuer of a written
statement signed by Landlord stating that Landlord is entitled to draw down on
the Letter of Credit. Landlord shall be entitled to draw the entire amount
under the Letter of Credit if either (i) Tenant commits an Event of Default
under this Lease, (ii) Tenant does not deliver to Landlord a replacement letter
of credit from Issuer or another financial institution satisfactory to Landlord
in the amount and form of the initial Letter of Credit no later than one month
before the expiration date of the then existing Letter of Credit, or (iii) upon
a proposed sale or lease of the Building Tenant does not deliver to any the new
landlord a replacement Letter of Credit pursuant to the provisions of (d) below.
Any amount drawn under the Letter of Credit shall be held by Landlord as a
security deposit, subject to the terms of Section 4. If Tenant fails to deliver
the Letter of Credit to Landlord when required, such failure shall constitute an
Event of Default under the Lease.

(b) Reduction or Elimination of Letter of Credit.

(i) Provided that there has been no Event of Default under the
Lease, annually on each anniversary of the Commencement Date, Landlord will
reduce the Letter of Credit requirement by $70,000.

(ii) Provided that there has been no Event of Default under the
Lease, and provided Tenant has pre-tax net income of at least $4,500,000.00
during the preceding portion of the calendar year either on the anniversary of
the Commencement Date or on December 31 of any year, then upon request by
Tenant, Landlord will reduce the Letter of Credit requirement to an amount equal
to $83,000.00; and provided that there has been no Event of Default under the
Lease, and provided Tenant has pre-tax net income of at least $5,500,000.00
during the preceding portion of the calendar year either on the anniversary of
the Commencement Date or on December 31 of any year, then upon request by
Tenant, Landlord will reduce the Letter of Credit requirement to zero. Any
request by Tenant for a reduction or elimination of the Letter of Credit
requirement shall be accompanied by a financial statement audited by an
independent certified public accountant or certified by the Chief Financial
Officer of Tenant, PROVIDED, HOWEVER, that if Landlord reduces or eliminates the
Letter of Credit requirement based upon a certified but unaudited financial
statement, Tenant shall provide

4.
<PAGE>

Landlord with an audited financial statement promptly following the end of
Tenant's fiscal year (but in all events by ninety (90) days after the end of
Tenant's fiscal year), and if such audited financial statement does not support
the reduction or elimination of the Letter of Credit requirement, the
requirement shall be reinstated.

(iii) If an initial public offering of Tenant's stock is made on
any public stock exchange resulting in a market capitalization of at least
$100,000,000.00, and if there has been no Event of Default under the Lease
during the preceding eighteen (18) months, then Landlord shall waive the
requirement of the Letter of Credit.

(c) Tenant shall not assign or encumber or attempt to assign or
encumber the Letter of Credit and neither Landlord nor its successors or assigns
shall be bound by any such assignment or encumbrance or attempted assignment or
encumbrance.

(d) If Landlord shall be holding the Letter of Credit as security,
then, in the event of a proposed sale or lease of the Building by Landlord,
Tenant will, upon ten (10) Business Days' notice, at its sole cost and expense,
cause the issuing bank to consent to the assignment or to issue a substitute
letter of credit on identical terms except for the stated beneficiary, from the
same issuing bank or another bank acceptable to Landlord in Landlord's sole
discretion, naming the new landlord as the beneficiary thereof upon delivery by
Landlord of the then outstanding Letter of Credit.

INITIALS:

Landlord [INIT]
Tenant [INIT]

<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C> <C> <C> <C>
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<PERIOD-END> DEC-31-1996 DEC-31-1997 MAR-31-1997 MAR-31-1998
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